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The fundamental insight from evolutionary theory for business and management is that we should design modern organizations to appeal to our moral sentiments.

This is a fundamental insight because it goes against an intellectual doctrine that pervades much of economics and management science. Ever since Adam Smith, economists have recognized that our self-interest is bounded by moral sentiments. Nevertheless, the dominant narrative in economics holds that human welfare is optimized in a system that maximally exploits our self-interest.

This economic narrative casts us in the role of Homo economicus, a rational agent that single-mindedly pursues its self-interest without any regard for social norms or the welfare of others. Moreover, it reduces our social interactions to arm’s length exchanges mediated by an impersonal price mechanism. The resulting picture is of a system in which we are guided, ‘as if by an invisible hand’, towards a collectively optimal outcome despite, or rather precisely because of, the fact that we pursue our self-interest in the face of ‘perfect competition’.

There is no doubt that this narrative contains an important insight, namely that financial incentives are a powerful mechanism to align interests. But on an evolutionary view of human nature, it is immediately clear that this cannot be the whole story of our welfare. The fundamental flaw of the economic narrative is that it discounts the central role of our ability to solve social dilemmas in explaining our welfare. Social dilemmas are a large class of situations in which there is a tension between our (short term) individual self-interest and the (long-term) collective interest. These dilemmas arise in the tragedy of the commons, the provision of public goods, but also whenever we engage in team production of the goods that we exchange, as we have done throughout our evolutionary history and continue to do in modern firms.

To maximize our welfare we should design organizations for Homo sapiens rather than for Homo economicus.

Game theory tells us that rational selfinterested individuals are unable to solve social dilemmas. Yet, empirical evidence from both the lab and the field demonstrates that we often do solve them. Evolutionary social science explains this discrepancy. It explains how the cognitive mechanisms that help us solve social dilemmas evolved – moral sentiments such as empathy, indignation and shame. These sentiments are the result of an evolutionary dynamic in which a combination of multi-level selection and gene-culture co-evolution conferred fitness advantages to members of groups in which these sentiments became more widespread.

The upshot of this explanation is not just a more accurate understanding of human nature, but also an alternative narrative of human welfare. In the evolutionary narrative it is not arm’s-length exchange that is the primary cause of our welfare, but our ability to solve social dilemmas. Appeals to our self-interest exacerbate these dilemmas. To solve them, we should appeal to the moral sentiments that we evolved specifically for this purpose. They are what makes us human and the key to our success. The policy implication is clear: to maximize our welfare we should design organizations for Homo sapiens rather than for Homo economicus.

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Published On: April 3, 2018

J.W. Stoelhorst

J.W. Stoelhorst

J.W. Stoelhorst is Associate Professor of Strategy and Organization at the University of Amsterdam. His research focuses on evolutionary foundations of social science theory and the application of evolutionary theory to management and organization.

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