Complexity science applied to the economy (complexity economics) views the economy as a system not necessarily in equilibrium, but rather as one where adaptive agents constantly change their actions and strategies in response to the outcomes they mutually create.
It holds that computation as well as mathematics is useful in economics, that increasing as well as diminishing returns may be present in an economic situation, and that the economy is not something given and existing, but forms from a constantly developing set of actions, arrangements, and technological innovations.
The economy is thus comprised of evolving networks of interacting agents, institutions, and technologies—networks of networks. The macro-level patterns of the economy – such as growth, innovation, business cycles – and market booms and busts then emerge from these dynamic micro- and meso-level interactions.
From the complexity economics perspective, change is largely an endogenous phenomenon, not simply the result of unexplained shocks from outside the system.
Equilibrium is therefore a rare and fleeting condition, not the natural state. This view undermines much of today’s generally accepted economic theory.
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.
Arthur, W.B. Foundations of complexity economics. Nat Rev Phys 3, 136–145 (2021). https://doi.org/10.1038/s42254-020-00273-3
Conventional economics depiction
Complex adaptive system depiction
