What is the Invisible Hand in Economics in simple words
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I’ll use an unrelated example. Video games.
Think of an open world game, where you have a questgiver in area A and your objective is in area B. There are multiple paths between A and B.
You pick up the first quest and travel to B via the main road, to avoid monsters. This path takes 10 minutes to travel from A to B, and 10 minutes back. However, on the second quest, instead of following the road, you cut through the forest to save some time, but encounter some monsters. This takes 9 minutes. You thought it would take 5, but those monsters slowed you down and you took 4 minutes to defeat them. On the third quest, you find a tunnel in the forest and it is clear of monsters. It’s winding, so it takes 8 minutes to traverse from A to B.
On all future quests, you take the tunnel because you know it is the fastest way over and no monsters to fight. A few players may take the road or cut through the forest, but everyone with experience in the areas will know to take the tunnel.
The invisible hand refers to both this behavior (an individual takes the path with the lowest costs) as well as the behavior of the aggregate entire population (most of the group chooses the fastest path). The invisible hand “guides” or “pushes” both individuals and societies to use the resources with the lowest cost.
If the monster population was to be reduced (i.e. lower NPC spawn rates), then the direct path through the forest would only be 5 minutes, maybe up to 8 if you do encounter a monster, but overall this path is suddenly better (lower time = lower cost), so the invisible hand will push the player toward the most efficient path.
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