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Complexity and Econ 100

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From Maria Alejandra Madi and RWER issue 106 Complexity is characteristic of a system that preserves the differentiation among its constituent elements while also preserving their identity. Complexity also implies dynamic systems, that is to say, open totalities of interrelated parts constantly changing in spacetime. The complexity of a system is related to the coexistence of intertwined parts in spacetime and complexity is intrinsic to real-world natural, economic and social processes (Almeida Filho, 1998). If we are to address contemporary problems of the kind referred to in the introduction both the natural world and human society need to be understood as complex systems, where the latter is nested in the former and interdependencies of different kinds arise. An economy, similar to

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from Maria Alejandra Madi and RWER issue 106

Complexity is characteristic of a system that preserves the differentiation among its constituent elements while also preserving their identity. Complexity also implies dynamic systems, that is to say, open totalities of interrelated parts constantly changing in spacetime. The complexity of a system is related to the coexistence of intertwined parts in spacetime and complexity is intrinsic to real-world natural, economic and social processes (Almeida Filho, 1998). If we are to address contemporary problems of the kind referred to in the introduction both the natural world and human society need to be understood as complex systems, where the latter is nested in the former and interdependencies of different kinds arise.

An economy, similar to other systems, consists of complex networks of agents engaged in ongoing interactions, characterised by competition and cooperation. These agents constitute heterogenous components and are in a constant state of learning, adaptation, coevolution, and potential transformation or elimination, as part of an uninterrupted dynamic process (see Arthur, 1988; Arthur et al., 1997). In an economic system, different agents must work to find solutions to challenges they encounter, act in accordance with what is expected of them by others, and collaborate with one another to construct economic, legal, and social structures.

Clearly, the standard circular flow model found in mainstream economics differs markedly from a complex system. Within this model, the interacting agents in the economy (households and firms) are typically homogenous, solve problems with more or less all relevant information and according to clear and simple decision rules founded on rationality, and activity tends towards equilibrium states (see Mankiw, 2015).

If represented as a complex system the circular flow would be replaced by dynamic interactions among heterogenous agents, subject to endogenous causal effects in time and space.

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. . . the goal of Econ 100 should be to introduce the conceptualization of the economy as a complex evolutive system with individual components that are connected and interdependent. Action of one part may trigger reactions of other parts, and these also have the potential for adaptation, reaction, innovation or collapse. Evolution is an irrevocable and unrepeatable process of unfolding, transformation, self-organisation entailing oscillation in time and space

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