Increasingly in economics what had been considered to be unusual and unacceptable has come to be considered usual and acceptable, if not necessarily desirable. Whereas it had been widely believed that economic reality could be reasonably described by sets of pairs of linear supply and demand curves intersecting in single equilibrium points to which markets easily and automatically moved, now it is understood that many markets and situations do not behave so well. Economic reality is rife with nonlinearity, discontinuity, and (...) a variety of phenomena that are not so easily predicted or understood. At the same time the broad coherence of economic systems is more impressive than ever in the face of such phenomena. The order of the economy appears to emerge from the complex interactions that constitute the evolutionary process of the economy. These phenomena have come to be labeled as complexity in economics. Even what seems simple in economics generally arises from behavior not reflecting rational expectations; we live in a world that reflects the enormous variety and diversity of humanity in their knowledge, attitudes, and behaviors, interacting with each other in an enormous range of institutional frameworks. What emerges in the aggregate may have little to do with what happens at the individual level. But this aggregate cannot be simply described by some set of aggregate equations. It emerges out of the soup of the individual and particular with all its multiform interactions and peculiarities. (shrink)

“The ‘fallacy of composition’ that drives a felicitous wedge between micro and macro, between the individual and the aggregate, and gives rise to emergent phenomena in economics, non-algorithmic ways – as conjectured originally by John Stuart Mill…, George Herbert Lewes … , and codified by Lloyd Morgan … in his popular Gifford Lectures - may yet be tamed by unconventional models of computation.” --K. Vela Velupillai (2008, p. 21).

The science writer, John Horgan (1995, 1997), has ridiculed what he labels “chaoplexology,” a combination of chaos theory and complexity theory. A central charge against this alleged monstrosity is that it, or more precisely its two component parts separately, are (or were) fads, intellectual bubbles of little consequence. They would soon disappear and deservedly so, once scholars and intellects realized what worthless dross they truly were (or are). As the culminating centerpiece of his argument, Horgan introduced the label, “the (...) four C’s,” which consist of cybernetics, catastrophe theory, chaos theory, and complexity theory.[2] More.. (shrink)

Ecologic-economic systems tend to exhibit greater complexity than systems that are purely ecological or economic. The interactions between the two types often generates nonlinear relations that lead to various kinds of complex dynamics that complicate management and decisionmaking regarding them. Of these, forests have characteristics that lead them to have special problems not usually encountered in the management of such systems. A central one is the long time periods involved managing forests compared to most other such systems. This means that (...) the issues regarding determination of discount rates for valuing future outcomes are more important for forestry management than for many other systems. Also, forests generate a wider range of externalities than do most other ecologic-economic systems, with implications for various hierarchical levels of management. This paper considers the array of these problems as they appear for a variety of forestry management issues. (shrink)

A deep theme of Austrian economics has been that of spontaneous order or selforganization of the economy. The origin of this theme dates to the putative founder of the Austrian School, Carl Menger, with his theory of the spontaneous emergence of money for transactions purposes in primitive economies being archetypal example (Menger, 1892). Menger drew this approach from the Scottish Enlightenment figures David Hume, Adam Ferguson, and Adam Smith, with the latter’s Wealth of Nations (1776) particularly important. The most important (...) developer of this idea within the tradition after Menger was F.A. Hayek (1948), who would identify this self-organization phenomenon with emergence, later expanding upon this into the broader concept of complexity (Hayek, 1952, 1967). Caldwell (2004) argues that this became an increasingly important focus of Hayek’s thought in the later years of his life. Among those examining this development in more detail besides Caldwell have been Koppl (2006, 2009), Rosser (2010a),1 and Lewis (2010). This essay will consider more thoroughly the relationship between the concepts of emergence and complexity and the roles that they have played in Austrian economics as well as more broadly in philosophy and science. An important point is that both of these concepts do not possess precise meanings; they are “terms of art” within philosophy. However, while closely linked through the general idea of a whole being “greater than.. (shrink)

According to Bikas Chakrabarti (2005, p. 225), the term econophysics was neologized in 1995 at the second Statphys-Kolkata conference in Kolkata (formerly Calcutta), India by the physicist H. Eugene Stanley, who was also the first to use it in print (Stanley, 1996). Mantegna and Stanley (2000, pp. viii-ix) define “the multidisciplinary field of econophysics” as “a neologism that denotes the activities of physicists who are working on economics problems to test a variety of new conceptual approaches deriving from the physical (...) sciences.” The list of such problems has included distributions of returns in financial markets (Mantegna, 1991; Levy and Solomon, 1997; Bouchaud and Cont, 1998; Gopakrishnan, Plerou, Amaral, Meyer, and Stanley, 1999; Sornette and Johansen, 2001; Farmer and Joshi, 2004) the distribution of income and wealth (Drăgulescu and Yakovenko, 2001; Bouchaud and Mézard, 2000; Chatterjee, Yarlagadda, and Charkrabarti, 2005), the distribution of economic shocks and growth rate variations (Bak, Chen, Scheinkman, and Woodford, 1993; Canning, Amaral, Lee, Meyer, and Stanley, 1998), the distribution of firm sizes and growth rates (Stanley, Amaral, Buldyrev, Havlin, Leschhorn, Maass, Salinger, and Stanley, 1996; Takayasu and Okuyama, 1998; Botazzi and Secchi, 2003), the distribution of city sizes (Rosser, 1994; Gabaix, 1999), and the distribution of scientific discoveries (Plerou, Amaral, Gopakrishnan, Meyer, and Stanley, 1999; Sornette 1 and Zajdenweber, 1999), among other problems, all of which are seen at times not to follow normal or Gaussian patterns that can be described fully by mean and variance. The main sources of conceptual approaches from physics used by the econophysicists have been from models of statistical mechanics (Spitzer, 1971), geophysical models of earthquakes (Sornette, 2003), and “sandpile” models of avalanches, the latter involving self-organized criticality (Bak, 1996). An early physicist to assert the essential identity of statistical methods used in physics and the social sciences was Majorana (1942). A common theme among those who identify themselves as econophysicists is that standard economic theory has been inadequate or insufficient to explain the non-Gaussian distributions empirically observed for various of these phenomena, such as “excessive” skewness and leptokurtotic “fat tails” (McCauley, 2004).. (shrink)

Relationships are studied between the non-observed economy, income inequality, corruption, social capital measured as trust, and various institutional quality, policy, and macroeconomic variables for a global data set of countries for two time periods accounting for social interactions. Tentative support is found for positive relations between the non-observed economy and income inequality, the non-observed economy and corruption, and a negative relation between corruption and trust. No significant relation was found between the nonobserved economy and tax rates, contrasting with previous studies (...) finding significant relations of opposite signs. Data difficulties and weak robustness tests suggest limits to our results. (shrink)

“A Public Domain, once a velvet carpet of rich buffalo-grass and grama, now an illimitable waste of rattlesnake-bush and tumbleweed, too impoverished to be accepted as a gift by the states within which it lies. Why? Because the ecology of the Southwest happened to be set on a hair trigger.”.

distraction that leads innocent Post Keynesians into “classical sin.” Davidson (1994, 1996) argues that core Post Keynesian (PK) ideas such as that insufficient aggregate demand arise from fundamental uncertainty in a monetary economy do not depend on nonlinearity or complexity, that these core concepts are axiomatically and ontologically true, and that the inability of agents to forecast well in dynamically complex situations reflects mere epistemological problems of insufficient computational abilities. Thus complex dynamics is merely a classical stalking horse. This writer (...) (Rosser, 1990, 1998, 2001) disagrees with the argument presented above and its relatives (Mirowski, 1990; Carrier, 1993). Dynamic complexity provides a foundation for fundamental uncertainty in Keynesian and PK models, and this applies to most of the various sub-branches of PKE besides Davidson’s “fundamentalist” or “Keynes-Post Keynesian”2 approach. The argument will be considered regarding three subdivisions of Post Keynesianism as identified by Hamouda and Harcourt (1988): the aforementioned fundamentalist Keynesianism, Sraffian (or neo-Ricardian), and Kaleckian (or Kaleckian- Robinsonian).3 Following King (2002, chap. 10), I admit to being more in sympathy with those he describes as “synthesizers” than with the more partisan sectarians of these approaches.4 I shall describe how each sub-branch has been analyzed using ideas of.. (shrink)

This article describes two experiments on awareness in recognition memory for novel faces. Two kinds of awareness, recollective experience and feelings of familiarity in the absence of recollective experience, were measured by "remember" and "know" responses. Experiment 1 showed that "remember" but not "know" responses were reduced by divided attention at study. Experiment 2 showed that massed versus spaced repetition of faces in the study list had the opposite effects on "remember" and "know" responses. Massed repetition increased "know" responses and (...) reduced "remember" responses. Spaced repetition increased "remember" responses and reduced "know" responses. The results of both experiments replicate previous findings from the verbal domain in the domain of face recognition, and hence they increase the ecological validity of this experiential approach to memory and awareness and the generality of its database. These findings are discussed from a rehearsal perspective on factors influencing the two states of awareness and in relation to the alternative "process dissociation" procedure. (shrink)

This paper considers the implications of complex ecologic-economic dynamics for three broad, Post Keynesian perspectives: the uncertainty perspective, the macrodynamics perspective, and the Sraffian perspective. Catastrophic, chaotic, and other complex dynamics will be seen as reinforcing the conceptual foundations of Keynesian uncertainty. Predatory-prey models will be seen as deeply linked to Post Keynesian macrodynamic models. Finally, certain cases in ecologiceconomic systems will be seen as generating such Sraffian, capital theoretic conundra as reswitching. Ecologic-economic models considered besides predator-prey will include fisheries, (...) forestry, lake dynamics, and global climatic-economic dynamics. (shrink)

“On the plane of philosophy properly speaking, of metaphysics, catastrophe theory cannot, to be sure, supply any answer to the great problems which torment mankind. But it favors a dialectical, Heraclitean view of the universe, of a world which is the continual theatre of the battle between >logoi,’ between archetypes.”.

The evolution of Mancur Olson’s views of his book, The Rise and Decline of Nations (1982), the middle of his three main books, is examined. It expands and extends to history and the world arguments presented in his The Logic of Collective Action (1965). While he never abandons the idea that the accumulation of interest groups in a democratic society may lead to its economic stagnation, how this comes about and can be overcome changes somewhat by the time of his (...) final book, Power and Prosperity (2000), which focuses on the problems of the transition economies and proper political governance. A sign of the greater complexity of his later views emerges in his analysis of the U.S. South, presented in his presidential address to the Southern Economic Association (1983). (shrink)

“When demand and supply are in stable equilibrium, if any accident should move the scale of production from its equilibrium position, there will be instantly brought into play forces tending to push it back to that position; just as if a stone hanging by a string is displaced from its equilibrium position… But in real life such oscillations are seldom as rhythmical as those of a stone hanging freely from a string; the comparison would be more exact if the string (...) were supposed to hang in the troubled waters of a mill-race, whose stream was at one time allowed to flow freely and at another partially cut off. Nor are these complexities sufficient to illustrate all the disturbances with which the economist and the merchant alike are forced to concern themselves. (shrink)

Economies making a transition from centrally planned socialism to market capitalism can experience chaotic hysteresis. This can arise from elements of the previous system persisting even as institutions are transformed with the system possibly experiencing chaos during this conflict. A model of investment cycles accompanied by technological stagnation shows this phenomenon which can be viewed from a cusp catastrophe perspective. Empirical tests of Soviet investment and construction data provide incomplete support for the cusp structure with chaos. Nonlinear structures are found (...) with bifurcation effects for all cases and possibly chaotic dynamics for five-year lagged construction data. (shrink)

James Madison University Harrisonburg, VA 22807 Tel: 540-568-3212 Fax: 540-568-3010 Email: [email protected].

In talks given early in the 1990s, Jean-Michel Grandmont (1998) introduced the concept of the self-fulfilling mistake. This phenomenon can emerge when economic agents cannot distinguish between randomness and determinism, a situation that can occur when the underlying true dynamics are chaotic (Radunskaya, 1994), although such a situation could arise with other forms of complex nonlinear dynamics besides those involving chaotic dynamics. In such a situation, agents may be unable to discern the true dynamics and may adopt simple, boundedly rational (...) “rules of thumb” based on some kind of backward-looking adaptive expectations (Bullard, 1994). For certain kinds of underlying processes, agents may be able to mimic the actual dynamics with such an “incorrect” behavioral rule, an outcome known as a consistent expectations equilibrium (CEE), a concept formalized by Hommes (1998) as meaning that the two processes have identical means and also autocorrelation coefficients at all leads and lags. Sorger (1998) and Hommes and Sorger (1998) have shown how in some cases agents can learn to converge on such CEEs, or self-fulfillingly mistaken behavior. These models all involve discrete dynamics. The first realization that a discrete chaotic dynamic could be mimicked by a simple linear autocorrelation function is due to Bunow and Weiss (1979) and Sakai and Tokumaru (1980), the latter demonstrating the possibility for the case of the asymmetric tent map, a result studied in more depth by Brock and Dechert (1991) and Radunskaya (1994). (shrink)

OBJECTIVE: To acquaint the student with the field of urban economics and to show how the principles of microeconomics and macroeconomics can be applied to the analysis of urban economic issues and problems. Such issues and problems include land issues, suburbanization versus central city development, housing availability and quality, racial discrimination, poverty, transportation, environmental quality, local public finance, and cities in less developed countries.

To acquaint the student with the problems of open-economy macroeconomics. These include the theory and policy issues related to the international balance of payments, the determination of foreign exchange rates, the functioning of the macroeconomy under different exchange rate regimes, the operation of macroeconomic policy under different exchange rate regimes, and the evolution and future of the international monetary system as a whole.

This essay reviews the arguments made for a New Austrian theory of business cycles by Tyler Cowen, based on risk analysis and assuming rational expectations. This contrasts with the Old Austrian view that questions measurable risk in economic analysis. The way risk is applied to analyze business cycles suffers from serious inconsistencies. The use of rational expectations is mistaken in the face of economic complexity as understood by the traditional Austrians. However, Cowen is commended for his open-mindedness, even as this (...) leads him away from a strictly Austrian perspective. (shrink)

The literature on speculative bubbles in foreign exchange rates is voluminous, with much of it failing to reject the presence of bubbles in many exchange markets.1 Serious testing of this issue began with the work of Meese (1986), Evans (1986), and Woo (1987). Each used a different approach, and each found evidence failing to reject the presence of bubbles in at least some exchange markets.

A new traditional economy combines elements of traditional culture, such as Confucianism, with a modern, technologically advanced economy, while a new institutional economy minimizes transactions costs through its institutional structure. South Korea has enhanced its competitive edge by drawing on Confucian elements such as respect for education and the search for family-like harmony in chaebol corporations that can reduce transactions costs (despite problems) in an open system. Despite also emphasizing respect for education, North Korea has drawn on anti-mercantile elements of (...) the Confucian tradition such as the excessive authoritarianism of its command socialism and the hermit-like closure induced by its juche policy of self-reliance. (shrink)

We use NF to designate the system known as Quine's New Foundations, and NF + AF to designate the same system with a suitable axiom of infinity adjoined. We use ML to designate the revised system appearing in the third printing of Quine's “Mathematical Logic”. This system ML is just the systemPproposed by Wang in [4], and essentially includes NF as a part.The pripcipal results of the present paper are:A. In NF the axiom of infinity is equivalent to the definability (...) of an ordered pair having the same type as its constituents.B. Considering the formulas of NF as having translations in the formalism of ML in the sense defined in [4], we find that a formula of NF is provable in NF if and only if its translation is provable in ML. From the fact that the axiom of infinity is provable in ML, one might be tempted to conclude that the axiom of infinity is provable in NF. It is explained why this is not a valid inference. Consequently, it would appear that there is a sense in which NF + AF is stronger than ML. (shrink)

The paper reviews statistical models for money, wealth, and income distributions developed in the econophysics literature since the late 1990s. By analogy with the Boltzmann-Gibbs distribution of energy in physics, it is shown that the probability distribution of money is exponential for certain classes of models with interacting economic agents. Alternative scenarios are also reviewed. Data analysis of the empirical distributions of wealth and income reveals a two-class distribution. The majority of the population belongs to the lower class, characterized by (...) the exponential (“thermal”) distribution, whereas a small fraction of the population in the upper class is characterized by the power-law (“superthermal”) distribution. The lower part is very stable, stationary in time, whereas the upper part is highly dynamical and out of equilibrium. (shrink)

There is a deep link between complexity economics and Austrian economics. Ideas of complexity were foundational in the work of Austrian economics from its generally recognized beginnings in the work of Carl Menger to the modern day, with Friedrich Hayek being probably the most important carrier of this theme in the school. Although interest in complexity economics among Austrians has waxed and waned over time, today such ideas are quite influential in the work of many Austrian economists. This chapter discusses (...) the varieties of economic complexity and the connection with the Austrian school of economics from Menger to Hayek, as well as more recent developments of Austrian views on complexity. (shrink)