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Survival of the fittest

Market models

Modeling how human beings behave in the absence of rules.

Model 1: Adam Smith’s The Wealth of Nations

Assumes conditions for human interaction that do not in practice exist:

• A level playing field: perfect equality, capability, opportunity and symmetry of information between participants.
  
• Rational participants: players act in an economically rational way
  
• Information is free: Information is universally, immediately available, and therefore has no value (so there is no particular value in keeping it)
• No collusion: Corollary of the Level playing field: participants are honest, do not take advantage of natural advantages and do not conspire to subvert market conditions.

Model 2: Thomas Hobbes’ Leviathan

Survival of the most brutish. Nature is red in tooth and claw.

• No cooperation
• No altruism
• No trust

Models are models —“Nomological machines”

• They model reality by proxy, they don’t describe it.
• They are idealised shorthand, and depend for their coherence on key simplifications that do not in fact appear in nature: no friction, symmetry, no supervening causes, homogeneity, infinite elasticity etc.