Complexity and the Economy #2

Slowly, over the last three or more decades, a feeling has grown among economists that their key assumptions of perfect rationality, equilibrium, diminishing returns, and of independent agents always facing well-defined problems are somehow not trustworthy, too restrictive, somehow forced. Now in the air are ideas of behavioral rationality, nonequilibrium, increasing returns, and of interconnected agents facing fundamental uncertainty in problems of decision-making. Economics has opened up to other approaches besides the standard neoclassical one….

…But what has been missing was the means to handle them, not just raw techniques but the mindset that would go with them, that the world is not perfect, that it isn’t machine-like, and that much of it cannot be reduced to simple equations—to variations in the number or level of entities…

…Among these are nonlinear dynamics, nonlinear stochastic processes, agent-based computation, and computational theory itself. The mindset too has changed. A feeling now runs across the sciences, and economics too, that the world is not a perfectly ordered system reducible in principle to mathematical equations, but is to a large extent organic and algorithmic—it proceeds by building on what is there already and it builds and changes step by step.

Source: Brian Arthur – Complexity and the Economy

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