Free Market Framework Revisited – The Evolutionary Algorithm in Pricing Decisions
The algorithm of evolution applies to any phenomenon that undergoes replication (producing subsequent generations), variation (occasionally altering composition during replication) and selection (succeeding differentially based on fitness to an environment). The free market system can easily be described in terms of the evolutionary algorithm. Effectively, pressures on pricing – whether to go up or down – is a variation and a selection (the selection occurs at the “market clearing priceâ€). The replication happens at any interval where prices can change. (Not to risk wading into the so-called Social Darwinism paradigm, it’s important to realize that the only quality judgment that manifests here is “fitness of price to a marketâ€, not “fitness of capitalism as a quality judgment to express the value of humanityâ€). It then becomes clear that the god-like invisible hand is no more transcendent than any other imagined patron; changes in the market occur, tiny increment at a time, in response to fitness of price to the environment of demand.
More importantly, the environment in which pricing must compete is a memetic one where the demand meme interacts with other internalized motivations to manifest as a behavior to buy or not to buy. (A meme is a discrete unit of cultural information that internalizes in humans, who express the meme as behavior). Retail companies and advertising firms are well aware of this phenomenon (whether by these terms or not) in attempting to spread viral memes through advertising in hopes of augmenting the “buy†behavior.
Is there any reason to think about free market economics in terms of evolutionary theory instead of any other classical framework? I happen to think that memetic evolution describes all observable outcomes in cultural behavior correctly, so I prefer this explanation for consistency’s sake. More importantly, as I hinted above, we live in an era where we need to move beyond the divine to the practical: if the invisible hand is “god-like”, then the market it controls is subject to omniscient wisdom and absolute quality-judgments. This paradigm leads to outcomes that are good for capital but bad for humanity. However, an appreciation of a cultural evolutionary framework assumes an acceptance of contingency (fitness to environment is the only quality judgment – survival doesn’t speak to any broader notions of Good or Right or True). And if we appreciate contingency, we free ourselves to make better, long-term decisions.
In this vein, memetic evolution accurately describes social constructs in “value-addingâ€. The purpose of branding, for example, is to differentiate fungible goods. Without differentiation, a company has no incentive to add to the quality of a product above the normative fungible level. Branding, however, allows an investment in the quality of a product that consumers in the marketplace can identify and appreciate when making a purchasing decision (selection). The characteristics of a brand are social construct – a memetic content. Q-tip brand cotton swabs have more cotton on the tip. Organic produce is more wholesome. American Apparel clothing is manufactured by local labor. “Green†products are better for the environment. All of these products are probably more expensive than their counterparts in the marketplace. Where they are successful in spite of this cost disadvantage, it is due to a memetic ecosystem that creates a motivation to value the differentiation above the additional cost. The environment of a brand’s fitness is the culture of the consumers who are in a position to demand it. Of course, a culturally created motivation only evolves when there is evolutionary pressure for it to evolve – i.e., behaviors tend to result from self-interest. Global warming has been an imminent threat for decades; but the entire explosion in human opulence from the industrial revolution forward can be neatly attributed to discovering how to put coal, oil, and natural gas to good use. The environmental externalities are far too attenuated for an average consumer to voluntarily bear substantial cost in an attempt to internalize these social costs: Americans only began driving hybrids when gas prices substantially increased.
This framework demonstrates that long-term, pragmatic social change systemically cannot come from price evolution and product content evolution. Even branding differentiation can only add value to the extent that consumers wish to internalize the cost: this is easy with Q-Tips, where the cost is nominal and the individual is the beneficiary of the cost-internalization; it is much more difficult with global warming, where our entire system of material comfort rests on a paradigm of unsustainable energy with a terrible benefit-to-externality ratio. I’m curious to see what other conclusions result from this redescription of economics…
Yes on Eight: Dogmatic Hate – A Social Contract Primer for Segregation Enthusiasts
On November 4th, after Steven Colbert called the election for Obama, I felt confident that I could leave the house for a bit and not return to the electoral map surprises that I had come to expect from major news networks in the last two elections. I walked, celebratory beer in hand, towards the direction with the loudest noise. This happened to be a political-rally-slash-block-party-discotheque in the Castro district of San Francisco. I’d guess that there were about five thousand Obama supporters crammed into two blocks, drinking and dancing in the intervals between serious but optimistic statements by leaders of the “No on 8†movement. I left before the bad news broke, but I doubt it stopped the jubilance. The passage of proposition 8 is a giant step backward in for civil liberties, but “Office of the President†was the bigger play and the results of the amendment are hardly definitive.
Many questions manifest; I only care about one: Can this really happen to a social contract?
