The Individual and Game Theory Criticisms and the Evolutionary Theory Essay

Introduction

The individual choice/game theory uses a very strict definition of individual rationality. On the contrary, the evolutionary game theory does not make any rationality assumptions. In this paper, the focus is going to be on commenting on whether the evolutionary approach is successful in addressing the criticism that, in neoclassical economics, the profile of the rational individual is not very realistic.

Evolutionary Theory Provides a Satisfactory Answer to the Criticism

In my view, the evolutionary game theory, which is a dynamic process, possibly offers the coordination mechanism which aligns beliefs with behaviour. It brings the game theory closer to economics by looking at economics as the product of an adjustment process instead of being looked at as a thing that simply springs in to existence.

The classical game theory, which was a standard theory until the 1980s, is set up on the assumptions of ideal rationality as well as common knowledge (Hodgson 2007). However, it is without a doubt that not only an assumption is made that each individual makes an effort to maximize utility, there is also need to make an assumption of common knowledge of rationality and consistently aligned beliefs (Griine-Yanoff and Lehtinen 2010).

According to my judgement, the evolutionary theory has offered some sort of solution to problems that are associated with the classical game theory. By making the relaxation of the perfect rationality assumption legitimate, the revolutionary turn overcame the hurdle which the refinement programme could not overcome.

The issue was in the fact that “classical game theory facilitated generation of predictions were disconfirmed by evidence” (Sugden 2001, p.116). Economists had interest in game theory for the reason that they had hopes of utilizing it in explaining the actions of the “real economic agents”. Therefore, in the setting, there was an assumption that ‘real economic agents’ like the perfectly rational players of the theory, must possess some explanatory strength.

However, the evolutionary theory is not confined to prescribed actions of ‘ideal’ agents as it focuses on the agents’ behaviour which is predetermined by successful actions of other agents.

In other words, the evolutionary theory focuses on specific behavioural patterns which have already been checked and proved to be successful. Therefore, economists do not try to work out some patterns on the basis of certain assumptions. The economists can have more specific material. The evolutionary approach offers particular settings and particular examples to operate on.

One of the strengths of the evolutionary game theory is that it does not focus on individuals but on the strategies themselves. It is those strategies that are successful themselves which attract the agents and the individuals do not consciously make choices.

It is only that with time, in one way or the other, they learn to make choices of strategies which, in regard to expected utility, are better for them. This might come about for the reason that “individuals learn from past play, they copy the behaviours of other players that are successful, or they adapt” (Patokos 2011, p.3).

Therefore, the evolutionary theory addresses limitations of the game theory which is too ‘theoretical’. The evolutionary theory leaves behind certain theoretical notions like rationality to focus on more specific points like strategies used by the agents.

The individual choice/game theory offers models which can hardly fit the modern (i.e. real) world, whereas the evolutionary theory provides in-depth analysis of behavioural patterns and various strategies developed by agents. In simple terms, instead of theorizing (which is the case with game theory), the evolutionary theory is more concerned with analysis of situations which are true to life.

It is possible to claim that the evolutionary theory addresses the criticism that the neoclassical approach is unrealistic. The evolutionary approach verifies that it is possible to work out specific strategies which can be used in real life settings. The evolutionary approach enables economists to work out new ways to analyse various processes which take place in the business world. Finally, the evolutionary approach addresses one of the weakest points of the individual choice/game theory.

The evolutionary theory does not try to suggest some sort of rationality. The approach suggests that agents’ actions can be justified by previous experiences of agents. In other words, the evolutionary theory is not confined to analysing rationalities which influence agents’ choices. The evolutionary approach suggests a simple answer to one of the major questions concerning motives and stimuli. The evolutionary theory focuses on successful strategies agents develop.

Usefulness of the Evolutionary Approach

The evolutionary approach is very useful in addressing the problems associated with the individual choice/game theories that have been pointed out by critics.

In an interesting manner, it is not that the evolutionary game theory does not need to make any assumptions on rationality; in the actual sense, it can be proved that the individual rationality assumptions as they are known must not apply for evolutionary theory to take off. Therefore, I view this theory as being a response to the criticism that rationality in neoclassical economics is too restrictive and it offers a very strong answer by leaving out all the rationality assumptions.

Furthermore, I assume that evolutionary approach is more applicable in the contemporary business world. Admittedly, game theory proved to be quite effective in analysing certain processes. However, it is too concerned with the concept of rationality. In the ideal world where agents are guided by ‘ideal’ rationality, this theory could be the best option.

However, the modern competitive business world is more like the animal world where species try to adopt and simply survive. Likewise, evolutionary approach can explain many of the on-going processes. I assume that modern agents tend to strive for success which presupposes fitness to certain conditions. Thus, evolutionary approach is more concerned with agents’ actions and choices which lead to some kind of development, rather than tracing agents’ choices based on specific rationality.

In the evolutionary game, agents do not work out strategies based on their rationality. Agents “inherit” strategies which have already proved to be effective under certain conditions (Vincent & Brown 2005, p. 74). In other words, according to the evolutionary theory agents have specific patterns to use in this or that situation.

What is more, every pattern undergoes certain ‘mutation’ which makes it applicable in other situations. Thus, agents work out successful behavioral patterns based on previous experiences, and, at the same time, prepare ground for the next generations of players. The evolutionary approach reveals one of the most important phenomena in the business world.

It is possible to claim that one of the advantages of the evolutionary game theory is that it has two layers. Thus, the evolutionary approach presents an outer and inner game (Vincent & Brown 2005). These two layers can enable economists to carry out in-depth analysis of various trends.

The first layer takes into account players, their activities and the ways they develop new strategies. The second layer is concerned with the strategies worked out. Advantages, disadvantages and overall fitness of this or that strategy is under analysis. Admittedly, such thoroughness can help economists find answers for many questions.

For instance, economists not only analyse successful strategies and behavioural patterns. They are able to analyse settings that make people come to this or that conclusion. Economists are also able to understand factors that influence agents’ decision making. Admittedly, this understanding can help to predict changes which can take place in the nearest future.

In fact, the evolutionary approach makes economists prepared to various changes as it provides specific solutions to particular problems. This is one of the most important advantages of the evolutionary approach over the neoclassical game theory.

Therefore, I assume that the evolutionary approach is more complete as it suggests explanations which are more true to life. This approach enables the economist to analyse former experiences of the agents, and this, in its turn, can enable the researcher to predict behaviour of agents rather than contemplate (and seek for) ideal rationalities. This approach can be applicable for analysis of various processes taking place in the contemporary world.

Another advantage of the evolutionary approach is that it enables the researcher to work out (predict) certain behavioural patterns agents can follow in this or that situation. The approach suggests greater degree of certainty which is very important for such disciplines as economics.

It is also important to note that the evolutionary theory can help to trace changes that occur in the business world. Thus, agents develop specific behavioural patterns to fit the ‘environment’. Basically, agents evolve to successfully operate in specific settings. By tracing the changes in behaviours, the researchers can single out trends and principles that appear.

Therefore, the evolutionary approach extends to the analysis of agents’ behaviours as well as analysis of the settings. This approach can help researchers to carry out in-depth analysis of the major principles existing in the business world. The evolutionary approach can help to predict changes that are about to occur, or to work out the most effective strategies to cope with up-coming issues. Basically, the evolutionary approach offers effective solutions applicable in the rapidly changing world.

Conclusion

The evolutionary theory has given some solutions to problems that are said to be associated with the individual choice and game theories. By bringing a dynamic process to the game theory, this has rationalized the existence of several equilibriums.

The evolutionary approach focuses on particular strategies which have been worked out by agents on the basis of successful experience of other agents. The evolutionary theory offers specific solutions which can be applicable in the contemporary world, which is one of the advantages of the approach.

Reference List

Griine-Yanoff, T & Lehtinen, A 2010, Philosophy of game theory, Elsevier BV, New York.

Hodgson, MG 2007, ‘Evolutionary and institutional economics as the new mainstream’, Evolutionary and Institutional Economics Review, vol. 4 no. 1, pp.7–25.

Patokos, T 2011, ‘Evolutionary game theory – an introduction: issues in applied economics, Lecture notes for session 4’ (University of Hertfordshire).

Sugden, R 2001, ‘The evolutionary turn in game theory’, Journal of Economic Methodology, vol. 8 no. 1, pp. 113–130.

Vincent, TL & Brown JS 2005, Evolutionary game theory, natural selection, and Darwinian dynamics, Cambridge University Press, New York.