Odd Lots What Complexity Economics Can Add to Our View of the World
Jul 22, 2021
Brian Arthur, a leading economist in complexity economics and professor at the Santa Fe Institute, sheds light on the limitations of traditional economic models. He discusses how the pandemic highlighted irrational decision-making, like sawmills cutting production due to past fears. Arthur advocates for complexity economics, which embraces uncertainty and the dynamic interplay of participants. He argues that this approach can better explain unpredictable market behaviors and the intricate web of supply chain issues we face today.
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Complexity Economics vs. Traditional Economics
- Complexity economics assumes economic actors face ill-defined problems and fundamental uncertainty.
- It acknowledges that actors may not know other actors' resources, technologies, or actions, leading to unpredictable outcomes.
No Optimal Outcome
- Complexity economics acknowledges irrationality, differing perspectives, and constant learning in economic decision-making.
- It rejects the idea of a single, rational solution in uncertain environments.
Stock Market Dynamics
- Stock markets never reach an optimal outcome due to constant change and uncertainty.
- Participants try new strategies, creating feedback loops and shifting market dynamics, illustrating complexity economics.