The following was written in fall 2019 together with colleagues from ASU’s Biosocial Complexity Initiative and the IASS Potsdam. It was inspired by my previous post on complexity economics, which initiated a brief Twitter exchange with an economist from INET Oxford. Furthermore, it is addressed to the Forum for New Economy in Berlin, especially Michael Jacobs’ piece on a new paradigm in economic thinking. In May 2021 I added a section on Martin Gurri’s Revolt of the Public which links a complexity view with his framework.
In the spirit of the new economic paradigm put forth by Michael Jacobs at the Forum for a New Economy Launch this past Halloween, we would like to offer some insights from complexity studies for thinking about this new paradigm.We hold that the economy is a quintessential example of a complex adaptive system (CAS), characterized by multi-level interactions between learning agents operating with incomplete information, emergent patterns, and path dependent development. The overall economic system can be conceived as multiple systems which partially overlap one another, encompassing what might be traditionally delineated as social, political and environmental realms.
What can this conceptualization of the economic system tell us? Here we offer three specific examples of how complexity studies could contribute to a new economic paradigm. The first is a pragmatic recognition of the limitations of predictions within complex systems. Friedrich von Hayek, in his 1972 Nobel Speech, The Pretense of Knowledge, admonishes economists for their use of scientific methods developed for studying relatively non-complex physical systems to analyze complex economic systems, and the profession’s fixation on achieving precise numerical solutions to economic problems rather than trying to understand the underlying way the economy works, albeit in a descriptive and less precise way. “I prefer true but imperfect knowledge, even if it leaves much undetermined and unpredictable, to a pretense of exact knowledge that is likely to be false.” In this regard, we believe that CAS reinforces skepticism in our ability to predict the outcomes of economic policy and the confidence with which the economics profession often describes both the world and itself.Continue reading “Complexity & a New Economics Paradigm”