The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Market Competition and Selection

  • Lawrence Blume
  • David Easley
Reference work entry


There is a long history in economics of using market selection arguments in defence of rationality hypotheses. According to these arguments, rational investors drive irrational investors out of asset markets and profit maximizing firms drive non-maximizing firms out of goods markets. In this article we present the history of these arguments and discuss the literature that examines whether these arguments for market selection, and its impact on efficiency, are correct.


Rationality Market selection Kelly rule Incomplete markets 

JEL Classifications

C78 L1 G1 C73 
This is a preview of subscription content, log in to check access.


  1. Alchian, A. 1950. Uncertainty, evolution and economic theory. Journal of Political Economy 58: 211–221.CrossRefGoogle Scholar
  2. Amir, R., I. Evstigneev, T. Hens, and K.R. Schenk-Hoppe. 2005. Market selection and survival of investment strategies. Journal of Mathematical Economics 41: 105–122.CrossRefGoogle Scholar
  3. Blume, L., and D. Easley. 1992. Evolution and market behavior. Journal of Economic Theory 58: 9–40.CrossRefGoogle Scholar
  4. Blume, L., and D. Easley. 2002. Optimality and natural selection in markets. Journal of Economic Theory 107: 95–130.CrossRefGoogle Scholar
  5. Blume, L., and D. Easley. 2005. Rationality and selection in asset markets. In The economy as an evolving complex system, ed. L. Blume and S. Durlauf. Oxford: Oxford University Press.CrossRefGoogle Scholar
  6. Blume, L., and D. Easley. 2006. If you’re so smart, why aren’t you rich? Belief selection in complete and incomplete markets. Econometrica 74: 929–966.CrossRefGoogle Scholar
  7. Breiman, L. 1961. Optimal gambling systems for favorable games. In Proceedings of the fourth Berkeley symposium on mathematical statistics and probability, ed. J. Neyman. Berkeley: University of California Press.Google Scholar
  8. Cootner, P. 1967. The random character of stock market prices. Cambridge, MA: MIT Press.Google Scholar
  9. DeLong, J.B., A. Shleifer, L. Summers, and R. Waldmann. 1990. Noise trader risk in financial markets. Journal of Political Economy 98: 703–738.CrossRefGoogle Scholar
  10. DeLong, J.B., A. Shleifer, L. Summers, and R. Waldmann. 1991. The survival of noise traders in financial markets. Journal of Business 64: 1–19.CrossRefGoogle Scholar
  11. Dutta, P., and R. Radner. 1999. Profit maximization and the market selection hypothesis. Review of Economic Studies 66: 769–798.CrossRefGoogle Scholar
  12. Enke, S. 1951. On maximizing profits: A distinction between Chamberlin and Robinson. American Economic Review 41: 566–578.Google Scholar
  13. Evstigneev, I., T. Hens, and K.R. Schenk-Hoppe. 2006. Evolutionary stable stock markets. Economic Theory 27: 449–468.CrossRefGoogle Scholar
  14. Fama, E. 1965. The behavior of stock market prices. Journal of Business 38: 34–105.CrossRefGoogle Scholar
  15. Figlewski, S. 1978. Market ‘efficiency’ in a market with heterogeneous information. Journal of Political Economy 86: 581–597.CrossRefGoogle Scholar
  16. Friedman, M. 1953. Essays in positive economics. Chicago: University of Chicago Press.Google Scholar
  17. Grossman, S.J., and J.E. Stiglitz. 1980. On the impossibility of informationally efficient markets. American Economic Review 70: 393–408.Google Scholar
  18. Kelly, J.L. 1956. A new interpretation of information rate. Bell System Technical Journal 35: 917–926.CrossRefGoogle Scholar
  19. Koopmans, T. 1957. Three essays on the state of economic science. New York: McGraw-Hill.Google Scholar
  20. Mailath, G., and A. Sandroni. 2003. Market selection and asymmetric information. Review of Economic Studies 70: 343–368.CrossRefGoogle Scholar
  21. Nelson, R., and S. Winter. 1982. An evolutionary theory of economic change. Cambridge, MA: Harvard University Press.Google Scholar
  22. Sandroni, A. 2000. Do markets favor agents able to make accurate predictions? Econometrica 68: 1303–1342.CrossRefGoogle Scholar
  23. Savage, L.J. 1951. The theory of statistical decision. Journal of the American Statistical Association 46: 55–67.CrossRefGoogle Scholar
  24. Scuibba, E. 2005. Asymmetric information and survival in financial markets. Economic Theory 25: 353–379.Google Scholar
  25. Winter, S. 1964. Economic natural selection and the theory of the firm. Yale Economic Essays 4: 225–272.Google Scholar
  26. Winter, S. 1971. Satisficing, selection and the innovating remnant. Quarterly Journal of Economics 85: 237–261.CrossRefGoogle Scholar

Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Lawrence Blume
    • 1
  • David Easley
    • 1
  1. 1.