Complexity is a term used to describe a system or model composed of many interacting parts and components that follow local rules. These components interact in multiple ways giving rise to emergent phenomena that could not be generated solely by the sum of the individual parts. In this kind of system, there is no higher instruction that defines all the various possible interactions nor is possible to predict all the outcomes resulting from these interactions.
Complexity economics studies economic systems as complex systems. According to this approach, the economy is not a system in equilibrium, but one in perpetual motion. Uncertainty and technological change are seen as the crucial variables that explain this perpetual motion.
The parts of the economic system interact and change their individual behavior and strategies in response to changes in the behavior of other individuals and to changes in the macro-environment mutually created by all the individuals. These individuals, also known as agents, can be households, people or institutions such as firms, banks or governments.
Complexity economics assumes that the agents have limited rationality and generally do not optimize (e.g. utility) in the standard sense. They have, limited knowledge, cognitive skills and time to make decisions. Thus, agents act and make decisions based on processes such as social comparison, imitation and habits.
Phenomena such as economic growth, inflation and unemployment are emergent properties resulting from the interactions among heterogeneous agents, and of those with their surroundings.
Complexity is a term used to describe a system or model composed of many interacting parts and components that follow local rules. These components interact in multiple ways giving rise to emergent phenomena that could not be generated solely by the sum of the individual parts. In this kind of system, there is no higher instruction that defines all the various possible interactions nor is possible to predict all the outcomes resulting from these interactions.
Complexity economics studies economic systems as complex systems. According to this approach, the economy is not a system in equilibrium, but one in perpetual motion. Uncertainty and technological change are seen as the crucial variables that explain this perpetual motion.
The parts of the economic system interact and change their individual behavior and strategies in response to changes in the behavior of other individuals and to changes in the macro-environment mutually created by all the individuals. These individuals, also known as agents, can be households, people or institutions such as firms, banks or governments.
Complexity economics assumes that the agents have limited rationality and generally do not optimize (e.g. utility) in the standard sense. They have, limited knowledge, cognitive skills and time to make decisions. Thus, agents act and make decisions based on processes such as social comparison, imitation and habits.
Phenomena such as economic growth, inflation and unemployment are emergent properties resulting from the interactions among heterogeneous agents, and of those with their surroundings.