Complexity and Economics: Do We Need Next-Generation Systems Analysis Models?

Kostoska, Olivera (2021) Complexity and Economics: Do We Need Next-Generation Systems Analysis Models? In: Proc. of the International Balkan and Near Eastern Congress Series on Economics, Business and Management. University of Agribusiness and Rural Development/Bulgaria, University "St. Kliment Ohridski" Faculty of Economics/Macedonia, Plovdiv, Bulgaria, pp. 432-438. ISBN 978-619-203-308-8

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For a long time now, social and political liberalism has been accepted as the desirable basis for societal organization. The economic theory has tried to adapt itself to this perspective and has developed sophisticated models to support the claim that individuals will self-organize into a socially desirable state. This position, however, has led to а view of the economic system that is divergent from the developments in other disciplines. While statistical physics, social psychology, and ecology have forged ahead with non-linear dynamics and complex interactions between individuals, economists have insisted on an analysis that is focused on “optimizing behavior of fully rational and well-informed individuals in a static context and equilibria that result from that optimization”. This is a basic paradigm on which standard economic models and modern economic theory are built. Neoclassical economics is indeed a meta-theory that provides a framework in which many different approaches are possible. Ultimately, however, they all rest on the same assumptions of individualism, rationality, and equilibria. Besides, the constant appearance of economic crises shows that there are real problems with the analysis itself. While each crisis calls forth a new approach to economics, experience shows that inertia has ultimately prevailed among the scholars, and economics restores to the path that it was already following. Neoliberals removed the complexity from the real world and developed models that, by the method of comparative statics, allow for policy debate and policy choices. Without neglecting how far the economic thought has already brought us, the main point is that fundamental principles of rationality and general equilibrium do not precisely describe the reality. The new sciences of complexity can provide deeper understanding into the way groups of people behave when they (re)act together to shape the socio-economic system. This system is characterized by tipping points, non-linearities, asymmetrical relations, trade-offs, interlinkages and all other attributes of complex systems, making them difficult, if not impossible, to comply with the existing theory. But then again, do we need a generalized, coherent and simplified theoretical representation of the world? Not always! The policymakers would probably be better off if they adopt more eclectic and experimental approach driven by big data, artificial intelligence and machine learning. This paper provides an overview of the latest research on policy-making beyond neoliberalism.

Item Type: Book Section
Subjects: Scientific Fields (Frascati) > Social Sciences > Economics and Business
Divisions: Faculty of Economics
Depositing User: Prof. d-r Olivera Kostoska
Date Deposited: 27 Aug 2021 12:43
Last Modified: 27 Aug 2021 12:43

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