Individual behaviors,
interactions and collective efficiency. What economists can learn from network
science and complex-system theory.
Mainstream economics has always
employs simple, linear models to study how prices emerge and scarce resources are
allocated in societies. In standard economic models, agents are assumed to
behave as fully rational individuals who do not interact among them.
Furthermore, macro-economic models typically suppose that the average behavior
of the economy can be nicely proxied by the average
of the behaviors of the individuals that populate societies, I.e. that to study
how economies evolve is sufficient to understand how the “representative” firm,
consumer, bank, behave. This provides a simple-enough mathematical model that
allows for nice static equilibria where markets are shown to work smoothly and
efficiently. Only shocks exogenously hitting to the system can displace such an
idyllic state, but standard economic theory suggests that in general the
economy should go shortly back to another nice equilibrium state.
The Global Financial Crisis (GFC,
2007-2008) has put in a deep crisis the mainstream theoretical approach to the
study of economic systems. In this respect, the GFC was not only an economic
crisis, but also a crisis for economists, as the profession was essentially not
able to spot early-warning signals, predict the crisis, understand its deep
causes, and design appropriate policy instruments to prevent global crisis in
the future.
In these lectures, I will discuss
how network science and complex-system theory can provide an alternative and
more effective theoretical framework for economists. This new approach, knows
as Agent-Based Computational Economics (ACE) is based on the idea that
economies are evolving complex systems, populated by boundedly-rational
agents that interact through complex networks . Aggregate economic dynamics
results from aggregation of micro-economic behaviors and must be interpreted as
a sequence of meta-stable states, endogenously emerging from micro-level
behaviors and interactions. Employing a number of real-world examples, I will
discuss how ACE models are able to describe and explain our economies much
better than mainstream models.