Replicator Dynamics as a mental model is an interesting concept. And it is pretty easy as well to apply. This phenomenon is observed so abundantly in real world and is so fertile (i.e. it can be used in different fields) that I can’t imagine not knowing it before.
Throughout the animal and plant kingdoms nature has sprinkled replicator dynamics abundantly. So much so that, even though we humans have evolved to the highest peak of civilization, we still rely on our instincts of following this phenomenon.
The central actor in this system is an ecosystem of species. In such an ecosystem, the animals are able to replicate or mimic the behaviors of others. However they would always like to maximise their own ‘profit’ or benefit from following any behaviour. Let us consider this as [Payoff 1].
But the animals in these species wont like to be following a particular strategy which has a certain payoff but loses the benefit of staying in a herd. So lets call the benefits of staying in a herd as [Payoff 2].
Species would like to maximise their net payoff, hence they will try to maximize the combination of both the payoffs.Let us try to understand it with an example.
Humans follow the dressing norms of the culture they live in. That is they are replicating what their their society is doing. Since ‘norm’ implies that a particular dressing style is accepted by a large number of people, hence sticking to the norm has very high payoff of the second kind [Payoff2 i.e.]. This behaviour offers them psychological comfort in ‘sticking to the herd’.
However, if a particular dressing style is started by a celebrity [think: meat gown of Lady Gaga] people will be thinking and trying to estimate their benefit derived by following such a radical fashion style.
Now any person will be asking these questions to himself:
1. What material benefit does wearing a meat gown offers me? [estimating Payoff 1 of new strategy]
2. What psychological benefit will I receive by switching to a meat gown? [ estimating Payoff 2 of the new strategy]
3. What psychological benefit am I receiving by sticking to our current dressing norms [ Payoff 2 of current strategy]
4. What material benefit am I receiving by sticking to the current dressing norm.[Payoff 1 of current strategy]
So if benefits estimated of Question 1 and Question 2 is greater than Question 3 and 4 then switch.
Now say we have a host of strategies and some percentage of population following it. The evolution in the population will depend on these four questions asked by their individual members to themselves.
Hence we see an evolutionary dynamic being set up. This leads to a change in the population of animals following the strategies. They can co-exist, if the material benefits by switching is not too high, or they can lead to winner takes all kind of a situation.
It’s the same idea which led the famous biologist/mathematician Martin A Nowak to set up his ideas in his book SuperCooperators to explain the various evolutionary/ social /cultural observations like:
1. “Winners Don’t Punish”
2. Evolution of Human Language
3. Generous tit for tat behaviours etc.
Take a look at the following video of Drongos and their superb evolutionary ability. See if you can find out the replicator dynamics which led them to be such superbly clever birds.
For a business side of it, take a look at how I tried to predict and think of potential future of the Wells Fargo credit card here
I will end this post by mentioning one last idea. Turns out, if in an ecosystem there are lots of strategies surviving then it is far more robust and can survive a far greater number of shocks. So you can now think, why in the peaks of the bull runs, where only one strategy survives [that of ‘greater fool’ strategy] the stock market becomes highly fragile and any change in the macroeconomic condition [like liquidity squeeze due to higher inflation] sends the stock markets in a tizzy.