Managing Uncertainty, Evolution and Design in Behavioral Economic Analysis

32 Pages Posted: 11 Feb 2015 Last revised: 2 Oct 2015

Date Written: February 6, 2015

Abstract

The present work examines the evolutionary theories set forth by Armen Alchian in his 1950 paper, Uncertainty, Evolution and Economic Theory; and furthered by Geoffrey Manne and Todd Zywicki in their recent paper titled Uncertainty, Evolution, and Behavioral Economic Theory. Alchian’s thesis relied on an evolutionary understanding of firms’ activities in the context of uncertain settings, analyzing it through the lenses of ‘evolution’ and ‘natural selection’ in order to contend that for firms to ‘survive’ in the market, they would need to act ‘as if’ they are oriented towards profit maximization, regardless of whether or not they actually are.

There are three underlying propositions in the present study:

(i) Material rational behavior may not be automatically discarded in an environment where ‘uncertainty’ and ‘asymmetry of information’ are constant factors.

(ii) Allocative efficiency may be influenced by a flux of environmental, individual and behavioral inputs, which are expressed in the prioritization sets that economic actors establish in order to formulate their utility functions.

(iii) Manne & Zywicki’s posture against the inclusion of volitive elements in Antitrust Enforcement is essentially wrong, as proven by analyzing the role of ‘procompetitive justifications’ in the enforcement of Antitrust rules.

In sum, the present work concludes that Alchian’s evolutionary theory does not account for the interpretation that economic actors render to the inputs generated in their respective market environments. Even as empirical models may render useful biases that positively inform the conduct of economic actors, the use of conventional analytical tools in a world of uncertainty and incomplete information does not account for a consistent formulation of useful predictions in ever-changing market environments.

Keywords: management, managerial science, law and economics, behavioral economics, regulation, holism, symbolic interactionism, Alchian, profit maximization, profit realization, rationality, uncertainty, variation, selection, conduct, antitrust, tying, ties, evolution, bureau design, new public management

JEL Classification: L21, L22, L23, L1, L10, L2, L30, L42, D03

Suggested Citation

Azpúrua Alfonzo, José Miguel, Managing Uncertainty, Evolution and Design in Behavioral Economic Analysis (February 6, 2015). Columbia Law and Economics Working Paper No. 518. Available at SSRN: https://ssrn.com/abstract=2562617 or http://dx.doi.org/10.2139/ssrn.2562617

José Miguel Azpúrua Alfonzo (Contact Author)

Muñoz Tamayo & Asociados ( email )

Calle 72 #7-82 Piso 8
Bogotá
Colombia

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