Economies in the modern world are incredibly complex systems. But when we sit down to think about them in quantitative ways, it’s natural to keep things simple at first. We look for reliable relations between small numbers of variables, seek equilibrium configurations, and so forth. But those approaches don’t always work in complex systems, and sometimes we have to use methods that are specifically adapted to the challenges of complexity. That’s the perspective of W. Brian Arthur, a pioneer in the field of complexity economics, according to which economies are typically not in equilibrium, not made of homogeneous agents, and are being constantly updated. We talk about the basic ideas of complexity economics, how it differs from more standard approaches, and what it teaches us about the operation of real economies.
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