Complexity economics

application of complexity theory to economics

Complexity economics is the application of complexity science to the problems of economics. It studies computer simulations to gain insight into economic dynamics, and avoids the assumption that the economy is a system in equilibrium.


  • The features of complexity economics are clear. The economy is not necessarily in equilibrium; in fact it is usually in nonequilibrium. Agents are not all knowing and perfectly rational; they must make sense of the situations they are in and explore strategies as they do this…In this way the economy is organic, one layer forms on the top of the previous ones; it is ever changing, it shows perpetual novelty; and structures within it appear, persist for a while, and melt back into it again.
    • W. Brian Arthur, Complexity and the Economy Oxford University Press, USA, 2014, pp. preface xix-xx.
  • Right after we published our first findings, we started getting letters from all over the country saying, "You know, all you guys have done is rediscover Austrian economics"… I admit I wasn't familiar with Hayek and von Mises as the time. But now that I've read them, I can see that this is essentially true.
    • W. Brian Arthur, "Complex Questions," in Reason magazine (January 1996), and in Hayek's "Challenge : An Intellectual Biography of F. A. Hayek" by Bruce Caldwell, (2005), p. 362.
  • In complexity economics one is not searching out the truth; one is simply searching for a statistical fit that can be temporarily useful in our understanding of the economy.
    • David Colander, Complexity and the History of Economic Thought, Routledge, London and New York, 2000, p. 6.
  • Mechanical methods and models of simple causal explanation are increasingly inapplicable as we advance to such complex phenomena. In particular, the crucial phenomena determining the formation of many highly complex structures of human interaction, i.e., economic values or prices, cannot be interpreted by simple causal or 'nomothetic' theories, but require explanation in terms of the joint effects of a larger number of distinct elements than we can ever hope individually to observe or manipulate.
  • The neoclassical era in economics has ended and has been replaced by an unnamed era. We believe what best characterizes the new era is its acceptance that the economy is complex, and thus that it might be called the complexity era.
    • R.P. Holt, J.B. Rosser, and D. Colander, The Complexity Era in Economics, Middlebury College, (January 2010), p. 3.
  • That very large system, with interconnected industries responding to each other through delays, entraining each other in their oscillations, and being amplified by multipliers and speculators, is the primary cause of business cycles. Those cycles don't come from presidents, although presidents can do much to ease or intensify the optimism of the upturns and the pain of the downturns. Economies are extremely complex systems; they are full of balancing feedback loops with delays and they are inherently oscillatory.
  • The other thing was an open problem: How does economics really look like when you recognize it as the prototype of a new kind of science of complex phenomena which could not employ the simple model of mechanics or physics, but had to deal with what then I described as mere pattern predictions, certain limited prediction. That was so much more fascinating as an intellectual problem.
    • Gary North and Mark Skousen, 1985 interview in: Hayek on Hayek: An Autobiographical Dialogue, editors Stephen Kresge/Leif Wenar, Routledge, (1994), p. 84.
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