Complexity in Economic Theory and Real Economic Life

• Published in: European review (Chichester, England) Vol. 17; no. 2; pp. 403 - 421
• Main Author: Lorenz, Hans-Walter
• Format: Journal Article
• Language: English
• Published: Cambridge, UK Cambridge University Press 01.05.2009
• Subjects: Economic models; Economic theories; Economic theory; Inflation; Mechanics; Nonlinear; Time series; Traditions
• ISSN: 1062-7987; 1474-0575
• DOI: 10.1017/S1062798709000799

Complex dynamic behaviour in terms of chaotic motion, catastrophic events or other seemingly irregular and unexpected features of and in theoretical economic models – aimed at describing real-world phenomena – are nowadays known as a common property of many nonlinear approaches to an understanding of the motion of actual time series, such as inflation rates, unemployment figures, and many other – mainly macroeconomic – economic variables. Since most existing models in economic dynamics are constructed in the tradition of classical mechanics, this result does not appear as a real surprise. However, the real ‘complexity challenge’ for economic theory still persists in identifying the complex structure of economic reality, which cannot be satisfactorily represented by simple deterministic laws of motion, although such ‘laws’ might possess the possibility of very complicated dynamic motion.