Generalized Darwinism, the Nature of Selection, and Market Efficiency

While earlier evolutionary thinking in economics interpreted selection as a competitive process driven by scarcity, akin to Charles Darwin’s idea of struggle for survival, modern evolutionary economics recognizes, as Darwin had noted, that selection also operates at the group level. By contrast, the idea of sexual selection, which Darwin used to explain why traits that are wasteful from the point of view of survival selection may nonetheless evolve, has thus far been overlooked. The chapter demonstrates how, within the group selection context of the firm, the causal logic of sexual selection is relevant, and why this provides a good reason to reject Milton Friedman’s claim that market efficiency implies that firms maximize profits. Specifically, it is likely that the bottom-up process of mutual preference selection between firms and their employees results in organizational cultures that overshoot their functionality in terms of efficiency in product markets.