Evolutionary Theory and Economic Policy with Reference to Sustainability
AbstractThe policy recommendations of most economists are driven by a view of economic reality embodied in Walrasian general equilibrium theory. Ironically, the Walrasian system has been all but abandoned by leading economic theorists. It has been demonstrated to be theoretically untenable, its basic assumptions about human decision making have been empirically falsified, and it consistently makes poor predictions of economic behavior. The current revolution in welfare economics offers opportunities on two related fronts for an evolutionary perspective on human behavior to reshape economic theory and policy. The first opportunity is to incorporate empirically-based information about human behavior to the study of human wants and their formation. This includes information about the evolution of the genetic component of decision making as well as the cultural dimensions of behavior. Expanding the role of economic analysis beyond stylized market behavior to focus on well-being (real utility) has far-reaching consequences for microeconomic policy. Secondly, abandoning the Walrasian model also means rethinking the microfoundations approach to the economic analysis of sustainability. This opens the door for economists to engage with the growing body of research on the evolution of whole societies. One link between the evolution of human behavior and the evolution of human societies is the psychological phenomenon of considering sunk costs. Understanding and overcoming the sunk cost fallacy may be the key to creating a sustainable society.
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Bibliographic InfoPaper provided by Rensselaer Polytechnic Institute, Department of Economics in its series Rensselaer Working Papers in Economics with number 0505.
Date of creation: May 2005
Date of revision:
Other versions of this item:
- John Gowdy, 2006. "Evolutionary Theory and Economic Policy with Reference to Sustainability," Journal of Bioeconomics, Springer, vol. 8(1), pages 1-19, 04.
- N0 - Economic History - - General
- O5 - Economic Development, Technological Change, and Growth - - Economywide Country Studies
- P0 - Economic Systems - - General
- Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-06-05 (All new papers)
- NEP-ENV-2005-06-05 (Environmental Economics)
- NEP-EVO-2005-06-05 (Evolutionary Economics)
- NEP-HPE-2005-06-05 (History & Philosophy of Economics)
- NEP-PKE-2005-06-05 (Post Keynesian Economics)
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