Complexity Economics

Another great post by Robin Hanson:

In the November Scientific American, Stuart Kauffman offered a bias theory to explain why economists show little interest in his "complexity" economics:

Unexpected change bedevils the business community endlessly ... Economists have so far not been able to offer much help to firms trying to be more adaptive. Although economists have been slow to realize it, the problem is that their attempts to model economic systems focus on those in market equilibrium or moving toward it. ... The path to maximum prosperity will depend on finding ways to build economic systems in which new niches will generate spontaneously and abundantly. Such an approach to economics is indeed radical. It is based on the emergent behavior of systems rather than on the reductive study of them. It defies conventional mathematical treatments because it is not prestatable and is nonalgorithmic. Not surprisingly, most economists have so far resisted these ideas. Yet there can be little doubt that learning to apply these lessons from biology to technology will usher in a remarkable era of innovation and growth.

The claim seems to be one of academic tool overconfidence: academic communities are biased toward the conceptual tools they use the most, and against approaches that rely on other tools. Now there are large coordination payoffs from academics using similar tools, since this lets them compare and build on each others' results. And this must put pressure on any given researcher to use tools similar to those used by others in his field. But it is far from obvious to me that this constitutes a bias.

I don't think this constitutes a bias so much as the effects of investments of human capital in specific tools (convential economic methodology). I think economics is like any other field and that new techniques and tools take time to get build, adapt, and get accepted. I do think there may be structual issues within academia that make it resistant to rapid change (not all aspects of this are a bad thing -- imagine if every new, untested theory was instantly accepted by everyone). I thin it will take time to reorient the profession towards more adaptive models, assuming this line of research bears fruit. (There is also probably a public choice story to be told here as well.)

I think the social sciences (including economics) may already trending in the direction of adaptive models. I see these tools as a compliment rather than a substitute for current economic methods. They may allow for a much better testbed for conventional (and unconventional) economic thinking.

Coincidentally, I am taking a course in Agent Based Modeling (ABM) this semester with Robert Axtell (who recently came to GMU). It looks to be an exciting class and I am impressed with the applications of ABM to many fields of study. I'm sure I'll be blogging more about this in the near-future. In the meantime, you can read more about ABM here.