On the Relevance of Learning and Evolution to Economic Theory

A discussion of the potential contribution of the literature on learning and evolution to the understanding of the economy is presented. A discussion of the interpretation of the rationality hypothesis in economics is presented. The interpretation is that the rationality hypothesis is a positive hypotheses about observable individual behavior. In this interpretation the rationality hypothesis simply says that economic agents' behavior can be interpreted as the solution to some optimization problem. It is argued that evidence is mixed on the issue of how the rationality hypothesis does in practice. Economic agents typically act in some, but not in all, situations rationally. This is shown both by experimental and by real world evidence. Examples are presented to illustrate the way research on learning and evolution can illuminate empirical observations concerning the rationality of behavior.