Thursday, January 1, 2015

Chris Dillow — In Praise Of Complexity Economics

Good post summarizing complexity economics with many useful links.
The question is: why is complexity economics not more influential? 
One reason is that it requires different techniques. It can't be studied merely by problem sets (ugh) devoted to standard optimization techniques. Instead, it requires agent-based simulations (here are a couple of examples), laboratory experiments of the sort done by Charles Noussair among others, or close attention to history and the institutional and cultural settings in which markets operate. 
And therein lies a second reason why complexity economics is under-rated. For me, one of its big messages is that context matters. Emergent processes sometimes lead to benign outcomes and sometimes instead to inequality and inefficiency, and which turns out to be the case can hinge on quite small differences. The great economists of the 20th century - such as Keynes, Samuelson or Friedman - tried to offer a general theory. Complexity economics doesn't. 
There's a third reason why complexity economics is under-rated. It does not give us a means of foreseeing the future. Of course, conventional economics doesn't do so either. But the difference is that complexity theory tells us that such forecasts might well be impossible - which is not what the customer wants to hear. The best it can do is help us understand what has happened. And for me, this is good enough. As someone once said, "Economists have only changed the world; the point, however, is to understand it."
Stumbling and Mumbling
Chris Dillow | Investors Chronicle

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