The Origin of Wealth: The Radical Remaking of Economics and What it Means for Business and Society

by Eric D. Beinhocker

Sterman has been able to statistically derive the decision rule used by the participants.22 This rule is based on a behavior known in the psychology literature as anchor and adjust. Rather than deductively calculate their future beer needs by looking at all the inventory on the board (which they can see) and incorporating the effects of the time delays and so on, the participants simply look at the past pattern of orders and inventory levels, and inductively anchor on a pattern that seems normal.

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Over the years, there has been a great deal of study of technology development as an evolutionary process.

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But two key observations from this work are relevant to the discussion of punctuated equilibrium. The first is that no technology is developed in isolation. All technologies depend on a web of relationships with other technologies;

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The second observation is that, as Kim Clark of Harvard Business School has noted, technologies are inherently modular:

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Complex emergent phenomena such as business cycles and stock price movements are likely to have three root causes. The first is the behavior of the participants in the system.

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Second, the institutional structure of the system makes a big difference.

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Third and last, are exogenous inputs into the system.

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While exogenous factors play a role, the equilibrium straitjacket of Traditional Economics has unfortunately led to an overemphasis on this factor at the expense of the other two.

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Evolution is an algorithm that is substrate-neutral. It takes information about designs for things and mindlessly grinds that information through a process. Evolution is also recursive: its output from one cycle is the input for the next round.

The Setup for Evolution All algorithms need a bit of setup to do their work. Algorithms process information, so we first need some way to turn potential LEGO designs into “information.”

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Such a coding of designs is called a schema.11 Once we have established our schema, we can then represent any possible design in the design space with the schema.

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Next, we need a mechanism for converting theoretical designs represented by the schema into actual plastic LEGO constructions in the real world. What we need is a schema reader.

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We then need a word to describe what the Reader is building;

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Interactors are designs that have been rendered from the space of possible designs and made “real”

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The last required piece of our evolutionary setup is a fitness function.

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The logic underlying these molecular wars is very simple: good replicators get replicated.18 It sounds like a tautology, but its simple, circular logic is one of the most subtle and powerful drivers of evolution.

The setup for evolution thus boils down to information processing. In order for evolution to get a foothold, the algorithm needs an information-processing medium: something to store, modify, and copy schemata.

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the information-processing medium that gave evolution a foothold in the economy was spoken language and, later, writing. Once the information-processing medium is established, the processes of differentiation, selection, and replication can begin.

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