Principles of Complexity Economics: Concepts, Methods and Applications (Classroom Companion: Economics)

✍ Scribed by Michael Roos

• Publisher: Springer
• Year: 2024
• Tongue: English
• Leaves: 759
• Edition: 2024
• Category: Library

✦ Synopsis

This textbook serves as an introduction to the rising field of complexity economics. In thirteen chapters, it provides a comprehensive and systematic overview of the concepts and methods of complexity economics and their applications to economic issues. The book explains that the complexity approach is not just another method, but a worldview that is different from the one of academics with neoclassical training. By contrasting complexity economics with neoclassical economics, the readers are induced to reflect on their own unconscious beliefs about the economic world and develop their own approach to dealing with the pervasive complexities and uncertainties of reality. The first five chapters serve as an introduction and overview. Chapters 6 - 12 present the core concepts of the book. Each of the seven chapters introduces a key concept of complexity and provides applications to economics topics. The final chapter discusses the implications of complexity thinking for economic policy and for the future development of economics.
This textbook addresses advanced undergraduate students and graduate students of economics, interested in a better understanding of the concepts and the way of thinking in complexity economics, as well as in acquiring a sound technical foundation to understand most of the research literature.

✦ Table of Contents

Acknowledgments
About this Book
Why Reading This Book?
Plan of the Book
For Whom the Book Is Relevant
How to Use It
References
Contents
1: Understanding a Complex World
Guiding Questions
1.1 Introduction
1.2 What Happened in the Past 30 Years?
1.2.1 Geopolitical Change
1.2.2 Globalization and Economic Crises
1.2.3 Advances in Information Technology
1.2.4 Advances in Biotechnology
1.2.5 Environmental Changes
1.2.6 Lessons from the Past 30 Years
1.3 A VUCA World
1.4 Wicked Problems and Social Messes
1.5 What Might Happen in the Future?
1.6 What Are Twenty-First Century Skills?
1.7 How Can Complexity Economics Help?
Things to Remember
References
2: What Is Complexity?
Guiding Questions
2.1 Introduction
2.2 Complexity Sciences
2.3 Systems
2.4 Non-Complex Systems and the Degree of Complexity
2.5 Complex Systems
2.6 Complex Adaptive Systems
2.7 Complexity Thinking and the Complexity Worldview
2.8 Complexity Concepts
Things to Remember
References
3: Measurement of Complexity
Guiding Questions
3.1 Introduction
3.2 Patterns
3.3 Complexity and Information
3.3.1 Information
3.3.2 Information Theory
3.3.3 Shannon Entropy
3.4 Complexity of Patterns
3.4.1 Entropy and Patterns
3.4.2 Permutation Entropy
3.4.3 Statistical Complexity
3.5 Complexity of Systems
3.5.1 Measurement of System Complexity
3.5.2 Structural Complexity
3.5.3 Functional Complexity
3.5.4 Cyclomatic Complexity
3.5.5 Organizational Complexity
3.5.6 Objective and Subjective Complexity
Things to Remember
References
4: Complexity Economics
Guiding Questions
4.1 Introduction
4.2 What Is Economics All About?
4.3 Neoclassical Economics
4.3.1 A Market Model with Rational Expectations
4.3.2 The Ramsey-Cass-Koopmans Model
4.4 Complexity Economics
4.4.1 Complexity Economics and Neoclassical Economics
4.4.2 Complexity Economics and Other Schools of Thought
4.5 Methods of Complexity Economics
4.5.1 Nonlinear Dynamics and Chaos
4.5.2 System Dynamics
4.5.3 Agent-Based Modeling
4.5.4 Social Network Analysis
4.5.5 Scenario Analysis
Things to Remember
References
5: The Economy as a Complex Adaptive System
Guiding Questions
5.1 Introduction
5.2 Systemic Views on the Economy
5.3 Economic Complexity
5.3.1 Combination of Specialized Knowledge
5.3.2 Measurement of Economic Complexity
5.3.3 Empirical Results
5.4 The Automobile and Dynamic Complexity
5.5 A Conceptual Framework for Socio-technical Transitions
5.6 Things to Remember
References
6: Nonlinearity
Guiding Questions
6.1 Introduction
6.2 Dynamical Systems
6.2.1 Differential Equations and Difference Equations
6.2.2 Dynamics of One-dimensional Continuous-time Systems
6.2.3 Dynamics of Two-dimensional Continuous-time Systems
6.2.4 Lotka-Volterra Population Models
6.2.5 Bifurcations
6.2.6 Catastrophes
6.2.7 Iterated Maps
6.2.8 Logistic Map and Chaos
6.2.9 Lyapunov Exponent
6.3 Business Cycles and Financial Instability
6.3.1 The Goodwin Model of Business Cycles
6.3.2 Great Moderation and Financial Crisis
6.3.3 Minsky´s Financial Instability Hypothesis
6.3.4 Keen´s Basic Minsky Model
6.3.5 Keen´s Minsky Model with Money Creation
6.4 Nonlinear Expectation Formation and the Business Cycle
6.4.1 Modified Multiplier-Accelerator Model
6.4.2 Properties of the Model
6.5 Nonlinearity in Economics
6.5.1 Applications of Nonlinearity
6.5.2 Empirical Evidence
6.5.3 Nonlinearity and Economic Worldviews
Things to Remember
References
7: Feedback, Circular Causality, and System Dynamics
Guiding Questions
7.1 Introduction
7.2 Unintended Consequences
7.3 Causality in the Social Sciences
7.3.1 Explanation by Reasons, Causes, and Processes
7.3.2 Types of Causes
7.3.3 Modeling Causal Mechanisms
7.3.4 Causality in Economics
7.4 Feedback and System Dynamics
7.4.1 Feedback
7.4.2 Causal Loop Diagrams
7.4.3 Modes of Dynamic Behavior
7.4.4 Stock-flow Diagrams
7.4.5 System Dynamics Models
7.5 Infection and Diffusion
7.5.1 The SIR Model
7.5.2 Sentiment and Narratives
7.5.3 The Bass Diffusion Model
7.6 Dynamic Decision-making and Oscillations
7.6.1 Stock Management Control Problems
7.6.2 The Beer Distribution Game and the Bullwhip Effect
7.6.3 System Dynamics Model of the Beer Distribution Game
7.7 Collapse
7.7.1 Exploitation of Renewable Common-pool Resources
7.7.2 Collapse of Civilizations
7.8 Causal Complexity
Things to Remember
References
8: Self-organization
Guiding Questions
8.1 Introduction
8.2 Cellular Automata and Agent-Based Models
8.2.1 Cellular Automata
8.2.2 Agent-Based Models
8.3 Self-Organization in the Natural World
8.3.1 General Characterization
8.3.2 The Ising Model from Statistical Physics
8.3.3 A Cellular Automaton of a Chemical Oscillator
8.3.4 An Agent-Based Model of Flocking Birds
8.4 Self-Organization in the Human World
8.4.1 Spatial Patterns
8.4.2 Temporal Patterns
8.4.3 Functional Patterns
8.5 Models of Self-Organization in the Social Sciences
8.5.1 Simple Contagion
8.5.2 Social Influence and Complex Contagion
8.5.3 Segregation and Spatial Organization
8.5.4 Self-organized Industrial Symbiosis
8.6 Spontaneous Order
8.6.1 Hayek on Spontaneous Order
8.6.2 Hayek´s Theory and Complexity Economics
8.7 The Economy as a Dissipative Structure
8.7.1 Thermodynamic Equilibrium and Entropy
8.7.2 Dissipative Structures
8.7.3 Dissipative Structures in Nature
8.7.4 The Fourth Law of Thermodynamics
8.7.5 Relevance for Economics
Things to Remember
References
9: Emergence, Levels, and Hierarchy
Guiding Questions
9.1 Introduction
9.2 Levels and Hierarchies
9.2.1 Hierarchies in the Social World
9.2.2 Levels in the Economy
9.2.3 Fallacy of Composition and Representative Agents
9.3 Emergence
9.3.1 Weak Emergence
9.3.2 Strong Emergence
9.4 Macrofoundations of Microeconomics
9.4.1 Downward Causation
9.4.2 The Emergence Paradigm in Sociology
9.4.3 Multiple Equilibria and Indeterminacy
9.5 Institutions in Economics
9.5.1 New Institutional Economics
9.5.2 Traditional Institutional Economics
9.5.3 A Model of the Emergence of Norms
9.6 Emergent Macroeconomics
9.6.1 The Flaws of Neoclassical Macroeconomics
9.6.2 The Generative View to Macroeconomics
9.6.3 Stylized Facts
9.6.4 An Agent-Based Business Cycle Model
9.6.5 Other Agent-Based Macro Models
Things to Remember
References
10: Economic Evolution, Novelty, and Diversity
Guiding Questions
10.1 Introduction
10.2 Novelty
10.2.1 Some Theoretical Considerations on Novelty
10.2.2 A Short History of Technical Inventions
10.3 Evolution as Process and Theory
10.3.1 Theory of Evolution
10.3.2 Genetic Algorithms
10.3.3 Fitness Landscape
10.3.4 Virtual Creatures
10.3.5 Cultural Evolution
10.4 Coevolution of Behaviors and Social Institutions
10.5 The Economy as an Evolutionary System
10.5.1 Evolution as Computation
10.5.2 Economic Evolution
10.5.3 Evolutionary Economics and Complexity Economics
10.6 Evolution of Knowledge
10.6.1 Knowledge of an Individual Person
10.6.2 Knowledge of an Organization
10.7 Evolution of Social Technologies
10.7.1 Cladistic Classification
10.7.2 Evolutionary Systems Modeling
10.8 Diversity
10.8.1 Kinds of Diversity
10.8.2 Framework for Analyzing Diversity
10.8.3 Diversity, Complexity, and Coping with External Stress
References
11: History and Path Dependence
Guiding Questions
11.1 Introduction
11.2 Historical and Ahistorical Economics
11.2.1 Economic Thinking vs. Historical Thinking
11.2.2 The Arrow of Time
11.2.3 Historical Economics
11.3 Path Dependence
11.3.1 Negative Definition of Path Dependence and Ergodicity
11.3.2 Positive Definition of Path Dependence
11.3.3 Reasons for Path Dependence
11.4 Lock-in
11.4.1 Some Examples of Lock-in
11.4.2 Responses to the Liebowitz-Margolis Critique
11.4.3 Types and Causes of Systemic Lock-in
11.5 Path Formation and Path Change
11.5.1 Critical Junctures
11.5.2 A Framework for Path Formation
11.5.3 Punctuated Equilibrium and Path Changes
11.6 The History of the Automobile in the Twentieth Century
11.6.1 Was the Gasoline-Fueled ICE a Good Choice?
11.6.2 Decisive Factors for the Choice of the ICE
11.6.3 Positive Feedback and Path Stabilization
11.7 Modeling Future Transitions of the Automobile
11.7.1 Model
11.7.2 Application to Sustainable Road Transport
Things to Remember
References
12: Adaptation, Learning, and Behavior
Guiding Questions
12.1 Introduction
12.2 Modes of Behavior and Learning
12.2.1 Modes of Behavior
12.2.2 A Conceptual Model of Consumer Behavior
12.2.3 Types of Learning
12.3 Rational Behavior and Maximization
12.3.1 What Makes Decisions Difficult
12.3.2 Computational Complexity
12.3.3 As-if and Approximation
12.3.4 Example of Intertemporal Utility Maximization
12.4 Behavior and Learning of Boundedly Rational Individuals
12.4.1 Heuristics and Biases
12.4.2 Fast and Frugal Heuristics
12.4.3 Learning
12.5 Cultural Adaptation and Imitation
12.6 Collaborative Problem-solving and Social Learning
12.6.1 Collaborative Problem-Solving
12.6.2 Social Learning
12.7 Sense-making and Narratives
Things to Remember
References
13: Conclusion: What Does it all Mean?
13.1 Introduction
13.2 Ten Lessons for Complexity Thinking
13.3 Why Does it Matter?
13.4 The Complex Economy and Complexity Economics
Complexity Lessons to Remember
References
Index