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The Grand Theory Of Business, From Charles Darwin

There’s no grand theory of business—nothing comparable to the theory of relativity for physics or the theory of evolution for biology. Neoclassical economic theory is the only real contender—from a few simple assumptions about self-interested rational actors, you can derive equations for everything. The business schools that are best known for big ideas are often the ones that have embraced the neoclassical model.

NYU Stern School of Business building in Greenwich Village, Manhattan, New York. (Photo credit: Wikipedia)

But neoclassical economics has fallen upon hard times.  Its many assumptions stray far from reality, as shown by many recent trade books, and its lackluster performance in predicting economic trends or informing policy disqualify it as a grand theory of anything. Behavioral economics might seem like the next big idea in economics–and therefore business—but it consists of

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a laundry list of paradoxes and anomalies that are difficult to relate to each other. A grand theory needs to show how everything fits together in a way that resolves paradoxes and anomalies.

Perhaps there is no such thing as a grand theory for business, in which case business school education will forever consist of a imparting a diverse set of skills and best practices derived from experience. We think otherwise. There is a next big idea and it recently made its debut at NYU’s Stern School of Business. It is evolution. Darwinian evolution.

Of course, people have been applying Darwin to business since Darwin’s day, but they applied a cramped and crippled version, assuming that Darwinism’s primary postulate was that the strong do (and should) crush the weak. The widely feared epithet “Social Darwinism” has often been hurled by critics of such attempts.

But evolutionary theory has been transformed in the last 20 years by three major developments, which make it much more suitable—and humane—when applied to business: multi-level selection theory, gene-culture co-evolution, and a much broader and more cooperative view of human nature.

Multi-level selection theory shows how groups can evolve to function as harmonious units and how humans evolved to be an ultra-cooperative species at the scale of small groups. Gene-culture co-evolution explains our capacity for rapid cultural change and our ability to construct our own social environments, leading to the mega-societies of today. Together, these new developments give us a new view of human nature, one that highlights the importance of cooperation and coordination. Human nature just isn’t as selfish and atomistic as is assumed in neoclassical evolutionary theory.   These changes make evolutionary theory as important for the boardroom as for the biologist’s laboratory. (For a review of all three developments, you can read ch. 9 of The Righteous Mindhere for free).

To explore the new implications of this vastly improved evolutionary theory for business, we recently organized a one-day symposium at Stern titled “Darwin’s Business: New Evolutionary Thinking About Cooperation, Groups, Firms and Societies.”  The conference featured an international roster of experts on evolution, economics, and human nature. You can learn more about the conference here. Below is the list of speakers, with a few key ideas from each talk:

Session 1: The Big New Ideas in Evolutionary Thinking, and Why They Matter To Business

1) David Sloan Wilson (Binghamton University), A Third Wave of Evolutionary Thought. Wilson explains how evolutionary thought has developed more or less continuously in the life sciences since Darwin, but experienced a case of arrested development in relation to human affairs. A renewed effort to rethink the human-related academic disciplines began in the late 20th century, comprising a second wave of evolutionary thought. Applying this knowledge to real-world domains such as economics, law, business, and public policy comprises a third wave.

2) Peter Richerson (U. C. Davis), Tribal Social Instincts, Gene-culture Co-evolution, and Business. Richerson argues that much of what organizational management amounts to is trying to shape the norms and institutions of quasi-tribal groups so that they work better.

3) Matt Ridley (Biologist and journalist), The Cultural Equivalent of Sex: How Exchange Accelerates Cultural Evolution. Ridley talks about how it is now well established that cultural evolution is a fundamentally Darwinian process, exhibiting incremental descent with modification, semi-random innovation (trial and error), competition among ideas, selective survival and other Darwinian features.

Session 2: The New Invisible Hand–Evolutionarily Informed Economics

4) Robert H. Frank (Cornell, and NYU-Stern), What Might Darwin Have Said about Private Contracts that Limit Competition?Frank explains how private contracts and limited competition have been treated as presumptively illegal under the anti-trust laws, which implicitly rest on the premise that more competition is always a good thing. Yet in many cases, more competition is clearly inefficient.

5) Herb Gintis (Santa Fe Institute), Corporate Honesty: A Behavioral and Evolutionary Model, with Policy Implications.Gintis explains that since the mid-1970′s neoclassical economic theory has dominated business school thinking and teaching, based on an incorrect Homo economicusmodel of human behavior.

6) Paul Romer (NYU-Stern), Punctuated Equilibria and the Evolution of Norms. Romer offers a view of history–and particularly the constant improvement of the human standard of living–by looking primarily at just two forms of innovative ideas: technology and rules.

View Original Article: forbes.com
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