economy as a complex system
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by
Steven
N.
Durlauf
and
Lawrence
E.
Blume
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Abstract
Complex systems are composed of particles or agents which interact directly with each other. The rules for this interaction may be very simple and may not reflect the sort of rationality associated with standard economic models. Interaction is not through some exogenously given market, nor does it depend on the complicated reasoning involved in game theory. A complex system exhibits emergent aggregate properties as it organizes itself, and these can explain important phenomena such as bubbles, herding behaviour, and segregation. In each case the aggregate state of the economy or market could not be predicted from the average behaviour of the individuals.
Keywords
agent-based models; bubbles; chaos; clusters; complex systems; complexity; computational complexity; coordination; deterministic chaos; economy as a complex system; econophysics; emergence; equilibrium; ergodicity; evolution; excess volatility; financial market contagion; forecasting; game theory; herding; imperfect competition; law of large numbers; minority game; neighbourhood effects; Prisoner's Dilemma; punctuated equilibria; residential segregation; social interaction; social networks; statistical mechanics; statistical physics; steady state; tit for tat; tournaments
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See Also
How to cite this article
Kirman, Alan. "economy as a complex system." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 11 August 2017 <http://www.dictionaryofeconomics.com/article?id=pde2008_E000246> doi:10.1057/9780230226203.0443