396. From optimal to adaptive
The assumption, in economics, that people exhibit rational choice that
leads to optimal outcomes yields an excuse not to look at processes that may or
may not yield optimal outcomes. That may contribute to simplicity, avoidance of
complexity, but also leads to neglect of important realities, of actual
decision making, conduct, market imperfections, and differences between
industries. And when optimality is impossible, due to uncertainty, one needs a different,
adaptive stance.
It is needed, for government and management of firms, to act on the
basis of insight in those realities. There is a myth afoot that for management
it does not matter where you are manager, because it supposedly is the same
everywhere, and that is not the case. Economic variables such as economies of
scale, concentration, integration in mergers/acquisitions or alliances, entry
barriers to markets, transaction costs, transparency of product quality, technology,
knowledge intensity, uncertainty of markets, investments and their lead times,
type of labour, importance of teamwork, fluidity of knowledge, etc. vary with
industries.
On the macrolevel it is useful to see the economy and industries as evolutionary
systems of variation, selection and transmission of what survives. State
interference is then seen as exerting influence on those processes, rather than
direct interference in conduct, though the latter may have to be part of it. In
any case, an evolutionary, adaptive approach is modest concerning planning, especially
planning of innovation. That would be as
if evolution planned, designed new species. There is little scope for ‘intelligent
design’, as in biology.
In economies, variation arises from entrepreneurship and invention,
selection is performed by markets and institutions, and the transmission of
success lies in growth of successful forms, imitation, publication, and
teaching. One can influence variation by enabling entrepreneurship, with
financial and fiscal measures, and employing it in the innovation of public
policies and services. One can further the selection by markets by preventing monopolies
and oligopolies, entry barriers to markets, and other conservative ploys of
existing firms. One can further transmission of success with policies
concerning communication, information, education and training.
In the further filling in of the processes of variation, selection and
transmission, important differences arise in comparison with biological
evolution. There is artificial variation in combining genes other than by
breeding, in genetic manipulation. Firms can influence selection by markets and
institutions by political action, such as lobbying. They can test products
before they are brought to market. Invention still involves trial and error,
but it is not entirely random, as variation is in biology, because it is fed by
learning, logics of inference and science.
The logic of adaptation in evolutionary systems avoids the problem of
rational choice, on the basis of calculation, with probabilities attached to
possible outcomes, that it cannot deal with uncertainty that is ‘radical’, in
the sense that one does not know all that can happen. Given the impossibility to
predict, due to uncertainty, and the consequent impossibility to find an
optimal strategy, one can make use of scenario’s, alternative imagined possible
futures, and seek a strategy that performs reasonably well across them, without
optimality in any single one of them. One can use computer modelling,
simulation, for this. In the development of products one can mimic evolutionary
processes of variation and selection, as happens, for example, in the
development of robots and algorithms.
On the level of the individual also, uncertainty has its implications,
requiring adaptiveness. One should grow up to be robust under unforeseeable setbacks, be resilient, learn to fall and stand up, have reserves to fall back on, and be flexible and
creative in taking new directions when needed, even when they are not known in
advance.
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