Complexity and the Economy

Economics is changing. In the last few years it has generated a number of new approaches. One of the most promising - complexity economics - was pioneered in the 1980s and 1990s by a small team at the Santa Fe Institute. Economist and complexity theorist W. Brian Arthur led that team, and in this book he collects many of his articles on this new approach. The traditional framework sees behavior in the economy as in an equilibrium steady state. People in the economy face well-defined problems and use perfect deductive reasoning to base their actions on. The complexity framework, by contrast, sees the economy as always in process, always changing. People try to make sense of the situations they face using whatever reasoning they have at hand, and together create outcomes they must individually react to anew. The resulting economy is not a well-ordered machine, but a complex evolving system that is imperfect, perpetually constructing itself anew, and brimming with vitality.

The new vision complements and widens the standard one, and it helps answer many questions: Why does the stock market show moods and a psychology? Why do high-tech markets tend to lock in to the dominance of one or two very large players? How do economies form, and how do they continually alter in structure over time?

The papers collected here were among the first to use evolutionary computation, agent-based modeling, and cognitive psychology. They cover topics as disparate as how markets form out of beliefs; how technology evolves over the long span of time; why systems and bureaucracies get more complicated as they evolve; and how financial crises can be foreseen and prevented in the future.

W. Brian Arthur is "one of the country's leading economic thinkers" according to Fortune magazine, and one of the pioneers of complexity theory. Formerly at Stanford University and the Santa Fe Institute, he is the recipient of the Schumpeter Prize in Economics and the Lagrange Prize in Complexity Science.

1. Complexity Economics: A Different Framework for Economic Thought

2. Inductive Reasoning and Bounded Rationality: The El Farol Problem

3. Asset Pricing Under Endogenous Expectations in an Artificial Stock Market
W. Brian Arthur, John H. Holland, Blake LeBaron, Richard Palmer,
and Paul Tayler

4. Competing Technologies, Increasing Returns, and Lock-In by Historical Events

5. Process and Emergence in the Economy
W. Brian Arthur, Steven Durlauf, and David A. Lane

6. All Systems will be Gamed: Exploitive Behavior in Economic and Social Systems

7. The Evolution of Technology in a Simple Computer Model
W. Brian Arthur and Wolfgang Polak

8. The Economy Evolving as its Technologies Evolve

9. On the Evolution of Complexity

10. Cognition: The Black Box of Economics

11. The End of Certainty in Economics

12. Complexity and the Economy