I attended Santa Fe Institute’s complexity economics symposium last week. I don’t think I’ve ever been surrounded by a more impressive group of people. A small sample set: Kenneth Arrow, winner of the Nobel Memorial Prize in Economics, Murray Gell-Mann, who introduced the quark, and how about Mykel Kochenderfer, who designed a new air collision avoidance algorithm that’s being rolled out across the industry in 2015. A humble bunch.
Below are a couple of my observations and thoughts from my time @ SFI last week (+ pull from existing texts). Much of this will sound familiar and plays nicely with Undercurrent’s responsive theory, which is underpinned by many of the same ideas.
Refuting traditional conceptualizing of markets as closed linear systems of rational actors that rapidly move prices towards equilibrium through forces of supply and demand, complexity economics posits that economies are open, dynamic, nonlinear systems that are far from equilibrium. Economies, both regionally and globally, are complex adaptive networks subject to ever-changing selective pressures. A heterogenous assortment of agents with a range of decision-making approaches - and subject to errors and biases - learn and adapt over time to maximize fitness.
Because the evolutionary process employs parallel search, and creates a spectrum of “jumps” or “adjacencies” on the fitness landscape, evolution is highly effective at discovering fit designs across massive design spaces. Evolutionary systems drive continuous adaptation, the accumulation of knowledge, creation of novelty, and growing order and complexity over time. In other words, evolution - whether economic or biological - is a process of continuous innovation.
Eric Beinhocker made the point that prosperity is not about the accumulation of capital, but rather the accumulation of (and access to) solutions that solve human problems. We talk a lot about the idea of an ever better future at Undercurrent and I found Eric’s message to be a nice interpretation of that notion.
Over the past 25 years, ~10% of the 5000 largest firms disappear each year. We make a similar point in Undercurrent’s ROS talk and what really made this come to life was an agent-based model SFI shared that demonstrates no organization lasts forever. Models are inherently flawed, but it raises a bunch of interesting questions. For instance, if all organizations are temporal in nature, why try and keep them alive when we see them struggling to survive? Is there a cost or benefit to prolonging their death?
The economic role of the state is to create an institutional framework to create an environment that supports the evolutionary workings of markets, strikes an effective balance between cooperation and competition, and shapes the economic fitness function to best serve the needs of a society. The state also has an obligation to ensure that all its citizens have an equal opportunity to participate in the economic system, and to provide a basic level of support for those who do not succeed in that system. Complexity economics contends that the focus of public policy should be on creating jurisdictional conditions for economic evolution, by implementing evolving portfolios of “policy experiments” with an emphasis on empiricism and data.
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