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This chapter argues that evolutionary economics should be founded upon complex systems theory rather than neo-Darwinian analogies concerning natural selection, which focus on supply side considerations and competition amongst firms and technologies. It suggests that conceptions such as production and consumption functions should be replaced by network representations, in which the preferences or, more correctly, the aspirations of consumers are fundamental and, as such, the primary drivers of economic growth. Technological innovation is viewed as a process that is intermediate between these aspirational networks, and the organizational networks in which goods and services are produced. Consumer knowledge becomes at least as important as producer knowledge in determining how economic value is generated. It becomes clear that the stability afforded by connective systems of rules is essential for economic flexibility to exist, but that too many rules result in inert and structurally unstable states. In contrast, too few rules result in a more stable state, but at a low level of ordered complexity. Economic evolution from this perspective is explored using random and scale free network representations of complex systems.

How are we to understand economic institutions that are comprised of multiple, interacting individuals who operate on various spatial and temporal scales, all of which are impacted by a myriad of factors? Economics has based its efforts largely on general equilibrium theory, yet this dominant paradigm has two fundamental flaws: it assumes that economic systems are at equilibrium and utilizes Homo economicus (a fictitious being) to define preferences, behavior, and abilities. Because these assumptions deviate so drastically from reality, there is doubt whether incremental changes can ever render it effective. Thus, alternative approaches have emerged. Evolutionary theory has brought novel insight to explain the behavior of individuals and institutions, and complexity theory has provided context to understand economies as complex adaptive systems. To permit greater understanding of economics and public policy, this Ernst Strüngmann Forum explored the integration of concepts from complexity theory and evolutionary theory. The hope was that this discourse would spur a synthesis and lead to the creation of a new economic framework—one capable of modeling economic systems as complexly adaptive and frequently out of equilibrium, based on the preferences, behavior, and abilities of real human beings and the diverse processes involved.

Complex systems theory and evolutionary theory hold important insight for economics, yet to date they have played a limited role in shaping modern economic theory. This chapter reviews different notions of equilibrium and explores four distinct areas relevant to the incorporation of evolutionary and complexity ideas into economics, finance, and policy. It investigates the determinants of major economic transitions, such as the Industrial Revolution or the collapse of the Soviet Union. It asks whether evolutionary processes should lead to an increase in complexity, on average, of economic and social systems over time. It reviews modern theories of group learning in biology, which have both evolutionary and complexity dimensions, to see if they might be relevant to human social institutions, such as firms. It analyzes whether the structure of human interactions or individual human intelligence is primarily responsible for the performance of our institutions. Finally, it finds that methods of evolutionary analysis and of complex systems to be extremely useful in capturing the open-ended, evolving nature of an economy composed of interactive agents and suggests that these methods be used to create to more realistic models of actual markets and economies.

This chapter explores how the economic model of individual behavior can be improved by incorporating a number of insights from evolutionary theory and complex systems theory. Insights from psychology, the neurosciences, and the behavioral strand of economics may be better understood from an evolutionary and complexity perspective. It takes an integrated interdisciplinary approach to economic phenomena. Core concepts in economic theory (preference and choice) are clarified and Tinbergen’s “four questions” about the origins of behavior are used to provide a framework. Informed by Tinbergen, areas from behavioral science are presented which may be useful for understanding economic behavior: some are directly evolutionary, while others come from scientific contexts informed by evolutionary theory. Each area has yielded well researched ideas that provide considerable insight into human nature. It concludes with a review of where research stands today and where it could be directed in the future.