Approach to the application of evolutionary game theory in the area of

entrepreneurship [Acercamiento a la aplicacin de la teora de juegos

evolutiva en el rea de emprendimiento]

Abstract

The implementation of concepts and theories from evolutionary biology in the economic
behavior and business sciences has been gaining research significance. The aim of this
paper, through literature review, is doing an approach to understanding the scope of
evolutionary game theory (EGT) in the entrepreneurship area. It is observed that EGT is a
useful tool for understanding the entrepreneurship process, considering elements of
complexity, allowing to make analogies that support the entrepreneurship analysis and
entrepreneurial behavior characterization.

Maussa Prez, F.O.,

Dez Echavarra, L.F.,

Urrego Marn, M.L.,

Valencia Arias, A.,

Torres, J.A.,

Bermdez Hernndez, J.
a
Universidad de Medelln, Colombia
b
Instituto Tecnolgico Metropolitano - ITM, Colombia
c
Corporacin Universitaria Uniminuto, Colombia
 Introduction

From traditional game theory, multiple economic problems have been addressed
(Ferreira, 2009). Then comes the Evolutionary Theory of Games (TJE), in which players
show an inherited behavior instead of rational behavior, constituting an option versus
classical game theory when modeling real situations where absolute rationality is difficult
to observe in the populations (Cakkalkurt, 2009), and offering a more dynamic approach
(Hodgson & Huang, 2012; Friedman, 1998). The need for a real dynamic theory had
already been expressed by John von Neumann and Oskar Morgenstern (1953), quoted by
Cakkalkurt, 2008) in his book, "Theory of Games and Economic Behavior"; and the ECJ
uses a dynamic model that offers a more diverse and realistic perspective, responding to
this need. In the case of the creation of companies, it is found that although research on
the entrepreneurship process has increased, some aspects that influence the results of
entrepreneurship such as strategy and the environment are still unclear. in the results of
business creation. It is here that from an evolutionary perspective one can analyze the
creation of companies as a series of continuous events that serve as a guide to
entrepreneurial efforts (Aldrich and Martnez, 2001). This article of reflection seeks to carry
out an approach to the understanding of the field of application of evolutionary game
theory in the area of business sciences; considering elements of complexity and observing
the economic behavior of man from a vision that goes beyond rational behavior. Initially,
we present a brief framework that shows the emergence and principles of evolutionary
game theory; then the field of the creation of companies from a framework of the
evolutionary theory is treated, and finally the characteristics and behaviors of the
emprendimiento are presented from the perspective of the Theory of Evolutionary Games.
 1. Emergence of Evolutionary Games Theory (EGT)

Traditional game theory was promulgated by John von Neumann and Oskar Morgenstern
in 1944 to explain human economic behavior. Subsequently, with John Nash's work in
1950, "Equilibrium Points in N-person Games" strengthened as a key economic branch,
establishing as a fundamental hypothesis that each player has a self-interest and behaves
rationally in all circumstances.
One of the most common criticisms is that perfect rationality does not exist in the real
world, so there are several limitations in the models based on this concept (Cakkalkurt,
2008). One explanation for these limitations is that economists who define rationality as a
tendency to choose the highest profitability available, leave aside moral influences and
other factors that can not be represented in the payment matrix of the game. which could
generate that the presence of a set of "greedy" maximizers in a game would lead to an
unfair outcome (Ernst, 2005).
To cope with this limitation emerges the Evolutionary Game Theory (TJE), which is based
on the fact that dominant genes over time provide higher rates of reproduction (Krivan, V.
2009; Easley and Kleinberg, 2010). In these models the assumption of rationality is
replaced by the criterion of population dynamics and stability, and Darwinian aptitude is
the reproductive success of an individual in relation to the population. Similarly, the four
elements of game theory are translated as shown in Table 1 (Cakkalkurt, 2008).
Maynard Smith and G. Price are given the concept that is the cornerstone of evolutionary
game theory: evolutionarily stable strategy.

2. Principles of Evolutionary Games Theory

Maynard Smith (1993) has developed a framework that has three components: strategies,
seen as the set of specific skills that individuals possess; payments, defined as the
expected reward for a specific action that depends not only on individual actions but also
on the actions of other members of the population; and stability, which specifies that game
theory is an attempt to characterize the criteria for valuation of evolution by natural
selection, and criteria are needed to determine if a variable is stable (Houston and
McNamara, 2005).
Based on biological evolution, the impact of a given behavior is given by the degree to
which the results of the interactions that it implies, contribute to its replication, either by
imitation or by any other mechanism of cultural transmission; an example of this can be a
business activity that represents a higher income, which is reflected in a greater probability
that the behaviors that lead to higher income are approved by the population (Kuechle,
2010).
Many behaviors involve the interaction of multiple organisms in a population and the
success of the behavior they carry out depends on how they interact with the behaviors of
others. So the fitness of an individual organism can not be measured in isolation, but has
to be evaluated in the context of the total population where it develops.
Vega (1992) proposes that the evolutionary process in business contexts should be
analyzed around the following three components: (i) Contagion / imitation: each company
in which there is an inefficient agent will be composed exclusively of inefficient agents
through a internal imitation process. (ii) Competition / survival: inefficient firms (those
whose production is zero) have a probability q (<1) of breaking in each period greater than
the corresponding probability p (> 0) of efficient firms. (iii) Culture / population inertia: when
a company goes bankrupt, its workers are replaced by new ones, whose behaviors will be
replicated by the frequencies of each behavior that the population has.
The contagion / imitation characteristics and population culture / inertia of this process can
be conceived as the formation of gradual imitation ideals underlying all evolutionary
models in social contexts. For its part, competition / survival reflects a selection process
channeled explicitly through a mechanism inclined to population renewal (Vega, 1992).
It is interesting to mention that the interest of the simulations in TJE is to observe how
absolutely irrational agents end up behaving as if they were rational, reaching in their
interactions the "evolutionary" version of the Nash equilibrium, which is conceptualized as
an "evolutionarily stable strategy" in the ECJ (Del Rio, 2007).

3. The creation of companies from the perspective of an evolutionary process

Evolutionary theory provides another interpretive lens, drawing attention to the complex
and chaotic world of business activities. This vision translates into the creation of new
organizational structures (variation), which allows us to study the way in which
entrepreneurs modify their organizations and use resources to survive in changing
environments (adaptation), the circumstances in which such organizational arrangements
lead to success and survival (selection), and how successful agreements tend to be
imitated and perpetuated by other entrepreneurs (retention) (Aldrich and Martinez, 2001).
In order to approach this approach it is necessary to mention that the concept of "nascent
entrepreneur" captures the notion of chaotic and disorderly entrepreneurial creation
process, in evolutionary terms. New entrepreneurs are an important source of variations of
the organization, starting with their intentions and continuing through the orientation of
their activities. Many can not reach the level of control necessary to gain mastery of the
boundaries of their organization, which is why the founding process often appears as
chaotic, complex, and compressed over time, due to the extreme selection forces ( Aldrich
and Martinez, 2001). However, firms that survive the nascent process often adopt the
existing routines and competencies of the productive branch of which they are part, but
some venture to create new components and paradigms. In this context, it is worth
mentioning that only one in ten of them are able to make their organizations grow
significantly (Reynolds and White, 1997).
On the other hand, the distinction between "innovators" and "reproducers" improves the
understanding of entrepreneurship. Reproductive organizations are defined as
organizations whose routines and competencies vary imperceptibly in comparison with
existing organizations in the established populations, providing little incremental
knowledge since the attainment of their activities are repetitions of those carried out by
their predecessors. Innovative organizations, initiated by entrepreneurs whose routines
and skills vary significantly from existing organizations. Most entrepreneurs, either by
choice or by force of selection mechanisms, tend to replicate the structures, competencies,
and routines of pre-existing organizations. Therefore, most nascent entrepreneurs begin
as small players and not as innovators (Aldrich and Martinez, 2001)
It is important to emphasize that overestimating the innovative capacity and personal traits
of entrepreneurs has obscured the important role of imitation in business processes.
Linked to this, evolutionary theory has drawn attention to the numerically dominant role of
reproducers, rather than innovators.
The founding of a new organization often requires the improvisation of new entrepreneurs.
This is how entrepreneurs, rather than applying rational and scientific principles, often rely
on cognitive and heuristic biases, given that in the context of a decision-making process,
biases and heuristics are cognitive mechanisms and subjective opinions that guide
behavior (Busenitz and Barney, 1997). On the other hand, knowledge is as vital as the
same capital for new entrepreneurs, being forced to learn at a significantly faster rate than
the people belonging to the organizations that have already gone through the process of
emergence and consolidation.
In order to understand the importance of the environment in which the company emerges,
the definition of community proposed by Hawley (1950, cited by Aldrich and Martinez,
2001) will be adapted, who perceives it as "a set of coevolutionary populations whose
organization is assembled through ties of commensalism and symbiosis through
orientation to a common technology, a normative order, or a regulatory regime. " In this
context, the relationships between populations in a developing community reflect at the
same time the symbiotic and commensalist axes.

4. Characteristics and behaviors of the entrepreneur from the perspective of the

Evolutionary Theory of Games

It is necessary to mention that there is no conclusive evidence of the existence of a

definite set of psychological characteristics distinctive of the entrepreneurs and the non-
entrepreneurs; and second, there are abundant examples that show that firms originate
even when they fail to improve the relative well-being of societies. However, most current
models are based on these assumptions, so there are no theories that explain why
entrepreneurship persists in the absence of these assumptions. To address the above, an
ECJ perspective is adopted, focusing on the competitive aspect of the entrepreneurial
phenomenon rather than focusing on its positive externalities and taking into account
individual aptitude rather than group selection (Kuechle, 2010).
Considering the above, this problem must be addressed from a model of ECJ where the
evolution of the behaviors and the aptitude of the entrepreneurs depends on the
frequency. In these models, randomly selected individuals play under the assumption that
the strategies or behaviors follow a certain norm of replication. This rule assumes that a
population plays a particular strategy in proportion to the success of this strategy in the
previous period in which it has been played and in relation to the "profitability" it has
generated; this strategy reaches such a point that if the majority of the population adopts it,
it can not be "invaded" by small groups that have adopted different behaviors. In this
configuration, the strategies do not have to be optimal to be diffused, but only have to
constitute above average and be able to resist the invasion of any other strategy so that
they can be preserved in the long term.
On the other hand, most evolutionary games in the business field are implemented by
randomly selected individuals in large populations, with the assumption that strategies or
behaviors follow a specific rule of replication. This is why the ECJ focuses on stable
evolutionary strategies, where individuals base their decisions on patterns implemented in
an earlier period, this is because entrepreneurs often lack the information necessary to
predict the behavior of competitors, customers and other economic agents (Busenitz and
Barney, 1997).
In these cases, the usual mechanism that regulates behavior reproduction in the ECJ is
that of "replication dynamics", which means that a population with a particular strategy
grows in proportion to the results of that strategy in the previous period in relation to the
average profitability of the population. This is how the players who enter the dispute tend
to observe the profitability of the strategies used in the previous period and choose
strategies that have a better payment performance than the average, the use of this
dynamic in cultural systems (in as opposed to biological systems) may be justified by
empirical evidence showing that successful behaviors are diffused through imitation, social
learning, and other forms of cultural transmission, and that these mechanisms function not
only among individuals but are conserved within future generations (Friedman, 1991,
1998).
The second representation of entrepreneurship that regulates the reproduction of behavior
in the ECJ corresponds to a vision of the initiative from the perspective of strategic
uncertainty; in this the entrepreneurs model themselves as political decision makers
whose decisions depend on those of other economic agents, such as: competitors,
consumers, venture capitalists, government authorities and so on. In this type of
interaction, business success depends not only on the individual's entry decision but also
on the input decisions of the other players because the market is assumed to have a fixed
capacity.
According to this view, decisions made by other economic agents will affect not only the
entrepreneur's profits but also his decisions. For this reason, it can not be considered as
an exogenous uncertainty as in the case of the uncertainty of the environment; Some
examples of this are market entry strategies characterized by imperfect competition,
decisions related to alternative technologies in the presence of externalities, and strategies
for acquiring financial resources under asymmetric information, among others (Kuechle,
2010 ).
However, another interesting consideration in this regard is that empirical evidence shows
that entrepreneurship involves non-pecuniary benefits such as feelings of independence
and a sense of achievement (Hamilton, 2000); the difficulty arises in the form of
representing these payments and if these can equally reproduce by imitation when
appreciating how the non-pecuniary benefits received by others affect their own well-
being.
 Anlisis critico

Es necesario mencionar que no hay pruebas concluyentes de la existencia de un conjunto

definido de rasgos psicolgicos distintivos de los emprendedores y los no emprendedores;
y en segundo lugar, existen abundantes ejemplos que demuestran que las empresas se
originan incluso cuando no logran mejorar el relativo bienestar de las sociedades. Sin
embargo, la mayora de modelos actuales se basan en estas suposiciones, por tanto se
carece de teoras que expliquen por qu el espritu empresarial persiste en la ausencia de
estos supuestos.
Por otro lado, la mayora de juegos evolutivos en el campo empresarial son
implementados por individuos seleccionados al azar en poblaciones grandes, con el
supuesto de que las estrategias o conductas siguen una regla determinada de replicacin.
Es por esto que la TJE se centra en las estrategias evolutivas estables, donde los
individuos basan sus decisiones en los patrones implementados en un periodo anterior,
esto se debe a que los empresarios suelen carecer de la informacin necesaria para
predecir el comportamiento de los competidores, clientes y otros agentes econmicos