Invisible Hand

The invisible hand is a metaphor coined by the economist Adam Smith in The Wealth of Nations. In economics, the invisible hand is the term economists use to describe the self-regulating nature of the marketplace. More broadly, it describes any situation where multiple people cooperate solely out of self interest rather than any altruistic motive.

Smith provides an example that illustrates the simplicity of the principle: “It is not from the benevolence of the butcher, the brewer or the baker, that we expect our dinner, but from their regard to their own self interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own necessities but of their advantages."

This is an example of a game theory situation known as a "stag hunt." The stag hunt is a close cousin to the Prisoner's Dilemma. Jean-Jacques Rousseau described a situation in which two individuals go out on a hunt. Each can individually choose to hunt a stag or hunt a hare. Each player must choose an action without knowing the choice of the other. If an individual hunts a stag, he must have the cooperation of his partner in order to succeed. An individual can get a hare by himself, but a hare is worth less than a stag.

In addition to the example suggested by Rousseau, David Hume provides an example of a stag hunts. His addresses two individuals who must row a boat. If both choose to row they can successfully move the boat. However if one doesn't, the other wastes his effort.