The Economy as a Complex Adaptive System

Chapter 5 explains why the economy is a complex adaptive system and presents a number of examples of a systems view of the economy. Systemic thinking is a key element of complexity economics. Unlike natural systems, social systems such as the economy can often be defined in multiple ways, which makes the study of social systems very challenging. The chapter also introduces the concept of economic complexity, which is a useful method for working with high-dimensional economic data. This quantitative approach is complemented by a qualitative account of the history of the automobile as an example of structural economic and societal change caused by technological innovation. Some aspects of this history of the automobile are treated more formally in later chapters, e.g. the technological choice between the internal combustion engine and the electric engine in the early twentieth century. In addition, the chapter introduces the multilevel perspective framework from transition theory as a useful tool for thinking about long-term transformations.