Complexity and the Economy
Page 36
homogeneous investors, assuming,
mortgage-linked bonds, 107
44–45
Goodhart’s law, 108
homogeneous rational expectations, 53
Goodwin, Brian, 156
homogeneous rational-expectations
governments, nudging hand of, 184
equilibrium (h.r.e.e.) values, 52, 64
gracefulness, in the learning process, 50
horse-drawn transportation industry,
graduate economic education, cognition
“niche firms” in, 147
and, 166–169
human behavior, finessed by the
grammar level, adaptation of, 154
Economic Man, 173
Grand Unified Theory of economics,
human language, evolution of, 153
hoping for, 173
human rationality, bounded, 31
greedy algorithm, 73n6
Hutchins, E., 97
growth, in coevolutionary diversity,
hypotheses
145–148
forming for bar problem, 35
sources of, 33–34
Haldane, Andrew, 14
hysteresis, built-in, 165
Halley, Edmond, 166
hand craft, mechanization of, 140
Iceland, banking system in 2008, 104, 109
Hanson, Ward, 69, 78
ideas, containing the mind, 163
Hausmann, Ricardo, 18n25
ill-definedness, dealing with, 164
Hayek, Friedrich, 23
ill-defined problem, 34, 185
health care, opening market forces, 106
imagination, using, 6
health care industry, prone to
implication primitive, as starting point,
information asymmetries, 107
124–125
health insurance, basic model of,
incentives, 105
112–113
increasing returns
heavy tailed probability distributions, 15
adoption, 75f
herd effects, causing bubbles and
with agents of one type only, 73–74,
crashes, 40
74t
heterogeneous agents, 32, 42, 47, 92,
allowing, 183
165
competition between economic
heterogeneous price expectations, as
objects, 83
indeterminate, 45
driving the adoption process, 71
heterogeneous traders, assuming, 45–46
dynamics of allocation under, 70
hierarchical organization, 92
flexibility not holding, 76
high inflation, as a situation of institu-
leading to multiple equilibria, 69
tional break-down, 97
many outcomes are possible, 82
High Modern approach, 174
path-efficiency and, 77
high stress, looking for in a proposed
process of, 17
system, 110
Increasing Returns and Path Dependence in
historical events, 70, 72, 73, 81
the Economy (Arthur), 193n1
[ 202 ] Index
increasing-returns case, 74–75, 75f
interactive grammar, 152, 155
ergodicity and, 77
intermediate needs, necessary to
laissez-faire giving no guarantee about
produce complex circuits, 128
“superior” technology, 82
Internet IP security protocol, 111
predictability lost, 76
interpretation, of data, 95, 178
increasing-returns economics, 69
invention, order of making a difference,
increasing-returns problems, 184
126
increasing-returns properties, 70
invention machine, 116
indeterminacy, 1, 24, 43–44, 72, 96, 171, investors, in computer programs, 13
175, 184
investors agents, as not clones, 177–178
pockets of, 175, 177, 181
Ioannides, 95, 98–99
individual behaviors, 3
individuals
Jacob, François, 191
within ecosystems become more
Jaynes, Julian, 161
complex, 151
Jeopardy quiz show, computer answering
finding optimal solutions to complex
questions, 116
questions, 159
jet aircraft designs, improving
induced expectations, market with,
significantly, 70n2
47–51
Judd, K., 2n2
induction, 6, 32–34, 179
Kaempffert, W., 120n1
inductive behavior, in chess playing, 32
Kaniovski, Yu, xxiii, 79–80, 86
inductively rational agents, 46, 61, 62
Katz, M., 78
inductive rationality, agents using, 180
Kauffman, Stuart, xi, xii, xxiii, 95, 96,
inductive reasoning
133, 147, 148
defined, 46
Kepler-Newton version, of the
humans using, 38
Copernican theory, 151
reasons for, 43–46
key building blocks, appearance of, 126
in situations complicated or
key mechanisms, constructing
ill-defined, 31
computer-based models of, 22
industrial cities, growth of, 139
Keynes, J. M., xxi, 5n6, 17, 45, 143, 178
industrial mutation, process of, 141
Kindleberger, Charles, 69
inflexibility property, 71
Kirman, Alan, xxi, xxiii, 61, 95, 98
information, people interpreting, 178
Klamer, A., 167
insignificant circumstances, become
Kollman, K., 95, 99, 102
magnified by positive feedbacks, 82
Koppl, Roger, xxiii
institutions, 21, 100
Koza, John, 37, 150
insurance, 113
Krugman, Paul, 91, 95, 99
intelligent behavior, bootstrapping itself
Kupers, R., 4, 24
up, 64
kurtosis, evident in the complex case,
intelligent search device, generating
54, 56t
“smarter models,” 34
intelligible patterns, imposed, 162
labor laws, 139
interaction, of dispersed agents acting in
Landes, David, 140
parallel, 92
Lane, David, xi, xv, xxi, xxiii, 30, 89, 91,
interaction networks, sociological
97, 98
literature on, 98n6
Langton, Chris, xxiii
interactions, self-reinforcing behavior
language, as programmable software,
in, 16
153
interaction structure, importance of,
Lansing, J. S., xxiii
97–98
laser printer, 18, 147
Index [ 203 ]
lattice, arraying agents on, 96
market signals, 60
lattice network, structures arising in, 99
market statistician, each agent acting
Laxness Haldór, 160
as, 46
learning, 50–51, 165
Marshall, Alfred, 23, 184
“Learning by Using,” 70n2
Martin, Henri-Jean, 161
LeBaron, Blake, xxiii, 66, 179, 186
Marx, Karl, 22, 135
Leeuw, Sander van der, xxiii
mathematical and computational
Leijonhufvud, 91, 96–97, 100
techniques, 93
Lenski, Richard, 133
mathematical models, leaving important
Liar�
��s Paradox, 30
questions unanswered, 101
libraries of objects, building, 131
mathematics
Lindgren, Kristian, 9–10, 11f, 99, 152
facilitating theory, 10
linear forecasting models, 48
shifting, 25
lock-in, 17, 69, 78, 81
Maxfield, Robert, 97
logical hole, in standard economic
McShea, Daniel, 148n1, 156
thinking, 175
meaning
logical indeterminacy, 175
different imposed on the same data,
logical needs, artificial world having, 121
162
logic circuits, 121
emerging, 160, 161
logic functions, 122t, 132
residing in associations, 164
long correlations, 15
as a set of associations, 160
long-term adoption shares,
Medicare system, costs tripled within
examining, 75
five years, 106
losses, taking early on, 78
medium-exploration-rate
Louça, F., 4
experiments, 53
low volatility, 13
mental models, 33–34, 37
Lucas, Robert, xiv, 49n2
meso-economy, properties of, 16
Lyapunov function, 86
meso-layer
in the economy, 16, 25
machine-language programs, 147
between micro and macro, 2
Maglio, Paul, 103n1
meso-level phenomena, 12, 16
Manski, Eric, 95, 100
metabolic chemical pathways, grammar
manufacturing laborers, working condi-
consisting of, 155
tions, 139
metaphors, as a form of pattern
Marengo, L., 66
association, 163
Margarita, S., 66
microeconomic situation, in modern
market(s)
economics, 173–174
careening out of control, 24
micro level, breakdown of a structure
entering an evolutionarily stable,
starting at, 110
rational-expectations regime, 53
microprocessors, creating niches, 146
as forecastible, 176
Microsoft, Point-to-Point Tunneling
heterogeneity of preferences in, 84
Protocol (PPTP), 111–112
increasingly locked-in to an inferior
Mill, J. S., 22
choice, 74
Miller, John, xv, 99, 102
self-organizing, 60
mind
market anomalies, 186
as fast pattern completer, 162–164
market hypotheses, creating multiple, 46
notions of, 160–162
market psychology, 40, 43, 47
Minority Game, 30
market realities, alternative theories
Mirowski, Philip, xxiii, 4n4
explaining, 41–42
Mitchell, Melanie, xxiii
[ 204 ] Index
model(s)
literature on, 14n19
filling the gaps in our understanding,
mutually stabilizing or destabilizing,
32
14n19
relaxing rational expectations, 186
properties of, 129–130
modeling
network-based structures, 94
cognitive and structural foundations
network externalities, 81n9
for, 95
network structures, of agents, 94
the cognitive process, 164–166
neural-network models, predicting
induction, 32–34
prices, 176
molecules, universal across all terrestrial
neural systems, 155, 163
life, 155
new circuits, constructing, 121
Monod, Jacques, 191
new technologies. See novel technologies
Morowitz, Harold, 156
no global controller, 92
mortgage-backed securities market, in
noise traders, 41
2008, 104
nonequilibrium
multi-agent choice problems, pervasive
assuming, 1, 4, 105
in economics, 175
connecting with complexity, 12, 15
multi-arm bandit problem, 83
endogenously generated, 4–7
multiple equilibria, static analysis
natural state of the economy, xix, 5
locating, 70
theorizing under, xx, xxi, 7–11
mutation and crossover, genetic
nonequilibrium systems, pre-analysis of
algorithm procedures for, 64
qualitative properties, 9
mutually reinforcing expectations,
non-ergodicity (or path-dependence)
subpopulations of, 186
property, 71
mysterious alchemy, 161
nonlinear dynamics, 90
nonlinear effects, requiring nonlinear
NAND primitive, as starting point,
inferential techniques, 100
124–125
nonlinear increasing returns, with a
Nash equilibrium, 37
continuum of adopter types, 80–81
The Nature of Technology: What It Is and
non-predictability property, 70
How It Evolves (Arthur), 119, 134
non-r.e.e. beliefs, subsets of not
needs
disappearing rapidly, 56
number of, trade-off with creation of
North, D., 91, 97, 100
new technologies, 127
“noticing,” building into a model, 114
represented by truth tables, 123
noun-based science, economics as, 25
satisfied by simple technologies first,
novel actions, constructing randomly
120
from time to time, 114–115
satisfying, 123
novel circuits, created from existing
negative feedbacks, system containing
ones, 123
only, 17
novel combinations, creation of, 141
Nelson, Richard, 69
novel elements
neoclassical allocation model, simple, 72
becoming available, 19, 137
neoclassical economics, handling time
constructed from existing ones, 120
poorly, 23
creating, 18
neoclassical economy, living in a Platonic
novel technologies
world, 4
calling forth novel arrangements, 137
NetLogo, 112
causing further opportunities, 20
network(s)
constructed by randomly wiring
emerging from initially random
together existing ones, 121
patterns of dyadic interaction, 98
constructed from components, 120n1
Index [ 205 ]
novel technologies (cont.)
path-efficient property, of the allocation
entering in groups, 20
process, 84
entering the active collection, 137
pattern-cognition, mapping directly in
forming from existing technologies,
action, 32n1
20
patterns, recognizing, 31, 179
making possible other novel
Paulson, John A., 107
technologies, 6–7
payoff, total or aggregate, 73n6
not constructed by random
Perez, Carlota, 20
combination, 130–131
perfect or deductive rationality, 31
setting up a train of technol
ogical
performance criteria, tailoring behavior
accommodations and new
to conform to, 108
problems, 141
perpetual novelty, 92, 95, 101
steps following the appearance of,
petrol-versus-steam car case, 82
137–138
phase transition, 14
triggering a cascade of further events,
phenomena
134
harnessed into use, 120n2
novelty, perpetual, 92
simpler toy models of, 9
nuclear industry, 81–82
phenotype, of a technology, 123
phoneme or simple element level,
objects, creating a growing collection of,
adaptation of, 154
131
Pines, David, xxiii, 90
Ogburn, William Fielding, 120n1
Planck, Max, 158
opportunity niches, forming and
pluralistic cognitive foundation, 93
disappearing, 19
Polak, Wolfgang, xviii, xxiii, 22n30, 119
optimal course of action, not
policy implications, of complexity, 23–24
definable, 93
policy systems
options, associated with contingent
injecting foreseen exploitive behavior
events, 154
in a simulation, 113–114
organizations, changing as the economy
looking for weak points in, 111
changes, 21
probing computer-based models of for
origin of life, 56, 155, 180
possible failure, 112
outcomes, collectively re-forming, 7
questioning the outcome of, 106
out-of-equilibrium dynamics, 92
political economy, 2, 23, 187
outside changes, adjusting equilibria
Pope, Alexander, 172
to, 6
population games, providing a class of
overlapping generations model, 167
models, 98
positive feedback(s)
Packard, Norman, 91n2
allowing, 183
Padgett, John, 98
causing nonequilibrium, 16–17
Page, Scott, 99, 102
inherent, 148
Palmer, Richard, xi, xiv, xv, xxi, xxiii, 66,
literature in economics on, 17
85, 179, 186
in models, 91
PARC (formerly Xerox Parc), xvii, xxiii
nonlinearities in the form of, 183
partial evil, as universal good, 174
theory of, 90
parts, of technologies, 18
positive-feedback trading strategies,
path-dependence, ix, 17, 71, 90, 183
seen as rational, 41
theorem on, 80
possible actions, generating families of,
path-efficiency, in constant--and
115
diminishing-returns cases, 77
potential inefficiency property, 70
path-efficient process, 73
power law(s), 15, 122, 129, 130
[ 206 ] Index
predictability, 76
problem and solution, what constitutes,
property of, 73, 84
101–102
predictions
problems, as the answer to solutions,
becoming unstable, 178