Complexity and the World of Heterogeneous People

For a long time, the science of economics has been dominated by the top-down paradigm, according to which sophisticated individuals, capable of efficiently allocating resources and of accurately predicting the future, make decisions within an unsophisticated world that everyone knows in detail and that brings no surprises. For reasons that are evident, the top-down view, although prone to rigorous scientific analysis, collides with concrete evidence: neither people are fully rational and efficient, nor the surrounding reality is easy to perceive and assimilate. Hence, a complexity view based on a bottom-up approach appears to be a more sensible way to address economic phenomena. In this chapter, the complexity perspective applied to economics is characterized and relevant literature is reviewed. Special attention is given to agent heterogeneity as a fundamental source of complexity. Moreover, agent-based models are highlighted as a fundamental tool in the study of complex economic systems.