Digital Technologies are a Driving Force for Complexity Theory

Almost 25 years ago a group of scientists at the Santa Fe Institute (SFI) invented complexity science. SFI’s original mission was to disseminate the notion of a separate interdisciplinary research area, complexity theory. It has recently announced that its original mission has been realized and that it was working on updating its mission for the coming fifty years. It is also mainly from the various works of the SFI that was founded the complexity economics school of thought.

One representative of complexity economics – actually one of the very first persons who spoke about it seriously – is W. Brian Arthur. Since the very first time I met Brian I am thinking about his ideas – especially in my field digital technologies. I am deeply convinced that – in a digital environment, where consumers become more and more powerful and corporate activities more and more transparent – economics needs new approaches and theories. Complexity economics can play an important role in this field!

Recently Brian gave a talk about this topic at the IBM Almaden Conference in San Jose. Let me summarize his key points for you:

  1. Standard economics asks: What agent behavior is consistent with the pattern it creates?
    Complexity economics asks: How does behavior adapt to the pattern it creates?
  2. This leads to a shift from equilibrium economics to non-equilibrium economics meaning multiple possible outcomes and becoming aware of adjustment problems (a »nudging hand).
  3. New economics sees business more like an ecological system than a well defined machine and it defines the problems as you go (e.g. web 2.0 software; no longer an issue of versions – always beta).
  4. As far as strategic planning is concerned, new economics allows some structure to emerge and provides libraries of solutions.
  5. Cognitive behavior will replace rational behavior.
  6. We will deal with more realistic instead of simplified assumptions (heterogeneous vs. homogeneous agents).
  7. We no longer act in a static equilibrium but in evolving patterns with perpetual novelties.

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