In this talk, W. Brian Arthur will discuss the foundations of complexity economics as explored in his recent piece published in Nature. Conventional, neoclassical economics assumes perfectly rational agents (firms, consumers, investors) who face well-defined problems and arrive at optimal behaviour consistent with — in equilibrium with — the overall outcome caused by this behaviour. This rational, equilibrium system produces an elegant economics, but is restrictive and often unrealistic. Complexity economics relaxes these assumptions. It assumes that agents differ, that they have imperfect information about other agents and must, therefore, try to make sense of the situation they face. Agents explore, react and constantly change their actions and strategies in response to the outcome they mutually create. The resulting outcome may not be in equilibrium and may display patterns and emergent phenomena not visible to equilibrium analysis. The economy becomes something not given and existing but constantly forming from a developing set of actions, strategies and beliefs — something not mechanistic, static, timeless and perfect but organic, always creating itself, alive and full of messy vitality.
About W. Brian Arthur:
In the late 1980s, Brian Arthur led the group at the Santa Fe Institute that developed "complexity economics" as an alternative approach to standard economics. In addition to complexity economics, Arthur has made notable contributions in the areas of increasing returns and the evolution of technical innovational. He is an External Professor, and the Santa Fe Institute, and Visiting Researcher, Intelligent Systems Lab, PARC.