Complexity economics: a different framework for economic thought - by W. Brian Arthur
This paper provides a logical framework for complexity economics. Complexity economics builds
from the proposition that the economy is not necessarily in equilibrium: economic agents (firms,
consumers, investors) constantly change their actions and strategies in response to the outcome they
mutually create. This further changes the outcome, which requires them to adjust afresh. Agents thus
live in a world where their beliefs and strategies are constantly being “tested” for survival within an
outcome or “ecology” these beliefs and strategies together create. Economics has largely avoided this
nonequilibrium view in the past, but if we allow it, we see patterns or phenomena not visible to
equilibrium analysis. These emerge probabilistically, last for some time and dissipate, and they
correspond to complex structures in other fields. We also see the economy not as something given
and existing but forming from a constantly developing set of technological innovations, institutions,
and arrangements that draw forth further innovations, institutions and arrangements.
Complexity economics sees the economy as in motion, perpetually “computing” itself—perpetually constructing itself anew. Where equilibrium economics emphasizes order, determinacy, deduction, and stasis, complexity economics emphasizes contingency, indeterminacy, sense-making, and openness to change. In this framework time, in the sense of real historical time, becomes important, and a solution is no longer necessarily a set of mathematical conditions but a pattern, a set of emergent phenomena, a set of changes that may induce further changes, a set of existing entities creating novel entities. Equilibrium economics is a special case of nonequilibrium and hence complexity economics, therefore complexity economics is economics done in a more general way. It shows us an economy perpetually inventing itself, creating novel structures and possibilities for exploitation, and perpetually open to response.
