INFORMATION, CHANCE, AND EVOLUTION: ALCHIAN AND THE ECONOMICS OF SELF-ORGANIZATION

The strong invisible hand theorem says there is emergent order in human affairs. Smith and Hayek described it; Alchian gave the evolutionary proof. He showed that profit maximization is an emergent property of evolution when survival depends on positive profits. I extend Alchian's argument to consider how evolution discovers and adopts successful organizational forms. Evolving organizations "lock in" on inefficient equilibria. Noise and imitation—the evolutionary operators Alchian stressed—promote learning and adaptation to move the evolutionary dynamic off inefficient paths. Evolution is orders of magnitude faster than optimization; the relative time scales make the processes observationally distinguishable.