Hi, I'm Mahdi Kohan Sefidi and I have a Master's degree in Economics. I am interested in complexity economics and computer simulations. Now, I would like to share some information about this subject and present some interesting things about it. Let's explore this together, guys! 😊
“I think the next century will be the century of complexity,” said the well-known Cambridge professor Stephan Hawking in an interview with San Jose Mercury News in January 2000.
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Complexity economics is the application of complexity science to the problems of economics. It relaxes several common assumptions in economics, including general equilibrium theory. While it does not reject the existence of an equilibrium, it sees such equilibria as "a special case of nonequilibrium", and as an emergent property resulting from complex interactions between economic agents [1].
Complexity economics is the study of economic systems as complex systems, which consist of interacting individuals that change their actions and strategies in response to the outcome they mutually create. Complexity economists study the emergence of structures and the unfolding of patterns in the economy and they regularly dispense with the assumptions of individual optimization and/or systemic equilibrium usually employed in the mainstream [2].
One example of a problem studied in complexity economics is the El Farol Bar problem [5].
The El Farol Bar problem is a problem in game theory where a fixed population wants to go to the El Farol Bar every Thursday night, unless it's too crowded. If less than 60% of the population goes to the bar, they'll all have more fun than if they stayed home. If more than 60% of the population goes to the bar, they'll all have less fun than if they stayed home. Everyone must decide at the same time whether to go or not, with no knowledge of others' choices [5]. This problem is a popular paradigm of complex economic systems in which agents self-organize themselves while they are in competition for a limited resource, without possibility of communication [6].
Complexity economics is an interdisciplinary field that draws on a wide range of mathematical and computational tools. Some of the mathematical base requirements for studying complexity economics may include:
- Nonlinear dynamics and chaos theory: These fields study how complex behavior can arise from simple systems, and are often used to model economic phenomena such as business cycles and financial market dynamics.
- Network theory: This field studies how complex systems can be represented as networks of interconnected nodes, and is often used to model economic phenomena such as trade networks and financial contagion.
- Agent-based modeling: This is a computational approach to modeling complex systems, where individual agents are simulated and their interactions are used to study the emergent behavior of the system as a whole. Agent-based models are often used to study economic phenomena such as market dynamics and the emergence of institutions.
These are just some examples of the mathematical base requirements for studying complexity economics. The field is constantly evolving, and new tools and techniques are being developed all the time. A strong foundation in mathematics, computer science, and programming can be very helpful for anyone interested in studying complexity economics.
[1] Complexity economics - Wikipedia. https://en.wikipedia.org/wiki/Complexity_economics.
[2] Complexity Economics | Exploring Economics. https://www.exploring-economics.org/en/orientation/complexity-economics/.
[3] The Atlas of Economic Complexity. https://atlas.cid.harvard.edu/glossary.
[4] Complexity Economics: A Different Framework for Economic Thought .... https://www.cfainstitute.org/en/research/cfa-digest/2013/11/complexity-economics-a-different-framework-for-economic-thought-digest-summary.
[5] El Farol Bar problem - Wikipedia. https://en.wikipedia.org/wiki/El_Farol_Bar_problem.
[6] Modeling the ‘El Farol Bar Problem’ in NetLogo. https://ccl.northwestern.edu/2006/ElFarol.pdf.
[7] Institute for New Economic Thinking - Wikipedia. https://en.wikipedia.org/wiki/Institute_for_New_Economic_Thinking.
[8] The Institute for New Economic Thinking | University of Oxford. https://www.inet.ox.ac.uk/.
[9] On the complexity of the El Farol Bar game: a sensitivity analysis. https://link.springer.com/article/10.1007/s12065-016-0138-1.