Complexity Economics

This chapter contrasts complexity economics and neoclassical economics. The current economic mainstream is dominated by neoclassical economics. To show that complexity economics is different, it is useful to define neoclassical economics and discuss its main properties. Neoclassical thinking is illustrated with the Muth model of rational expectations and the Ramsey–Cass–Koopmans model of economic growth. The chapter also presents topics where complexity economics has a clear advantage over neoclassical economics and shows the relationships with other economic schools of thought. Complexity economics emphasizes algorithmic thinking, which explains the heavy use of computational methods, which, along with other methods, are briefly introduced at the end of the chapter. The most important computational methods, which are also used in later chapters, are system dynamics and agent-based modeling.