Monday, May 28, 2007

Behavior, Institution and Evolution

Accidentally, a book review published in Science magazine in Nov. 2004 drew my attention the other day, not only because the reviewer - Eric Maskin- is among the most prestigious mechanism design theorists in mainstream economics, but also because of the title - "Markets and Where They Came From" - is quite shining.

The book, Microeconomics: Behavior, Institution and Evolution, written by Samuel Bowles stood out for several reasons.

First, according to Maskin, "not only did the author convey the elements of the conventional theory of capitalist economics, he offered a wealth of cutting-edge material as well".

Second, in this book, standard behavioral assumptions of orthodox economic theory was challenged through modifications with evolutionary game theoretic dynamics. While, "abandoning the self-interest axiom need not lead to complete theoretical permissiveness". Through experiments of "public-good" games, altruism was asserted as an important ingredient in the working of modern economics.

Third, altruistic preferences were not only needed for understanding modern economic behavior, they were, even more important in the creation of the foremost institution of private property. How did Bowles make his explanation reasonable? Well, a simple version of "Sharer-Punisher-Grabber" game was deployed in explaining this evolution process. Hobbesian equilibrium(only grabbers and sharers were left) and Rousseausian equilibrium(the grabbers vanished) were the possible configurations, depending on the stating points. But since the latter one was not able to withstand "mutations", therefore it tended to be less stable. Then came about the fourth type of people, "bourgeois", who behave differently according to whether they controlled the prize (or the site). The transition followed the path from Rousseausian equilibrium to Bourgeois equilibrium, rather than the other way. Why? That's because altruistic behavior could stabilize the Rousseausian equilibrium and thus make the transition possible.

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