Principles of Complexity Economics: Concepts, Methods and Applications (Classroom Companion: Economics)

Acknowledgments
About this Book
	Why Reading This Book?
	Plan of the Book
	For Whom the Book Is Relevant
	How to Use It
	References
Contents
1: Understanding a Complex World
	Guiding Questions
	1.1 Introduction
	1.2 What Happened in the Past 30 Years?
		1.2.1 Geopolitical Change
		1.2.2 Globalization and Economic Crises
		1.2.3 Advances in Information Technology
		1.2.4 Advances in Biotechnology
		1.2.5 Environmental Changes
		1.2.6 Lessons from the Past 30 Years
	1.3 A VUCA World
	1.4 Wicked Problems and Social Messes
	1.5 What Might Happen in the Future?
	1.6 What Are Twenty-First Century Skills?
	1.7 How Can Complexity Economics Help?
		Things to Remember
	References
2: What Is Complexity?
	Guiding Questions
	2.1 Introduction
	2.2 Complexity Sciences
	2.3 Systems
	2.4 Non-Complex Systems and the Degree of Complexity
	2.5 Complex Systems
	2.6 Complex Adaptive Systems
	2.7 Complexity Thinking and the Complexity Worldview
	2.8 Complexity Concepts
		Things to Remember
	References
3: Measurement of Complexity
	Guiding Questions
	3.1 Introduction
	3.2 Patterns
	3.3 Complexity and Information
		3.3.1 Information
		3.3.2 Information Theory
		3.3.3 Shannon Entropy
	3.4 Complexity of Patterns
		3.4.1 Entropy and Patterns
		3.4.2 Permutation Entropy
		3.4.3 Statistical Complexity
	3.5 Complexity of Systems
		3.5.1 Measurement of System Complexity
		3.5.2 Structural Complexity
		3.5.3 Functional Complexity
		3.5.4 Cyclomatic Complexity
		3.5.5 Organizational Complexity
		3.5.6 Objective and Subjective Complexity
			Things to Remember
	References
4: Complexity Economics
	Guiding Questions
	4.1 Introduction
	4.2 What Is Economics All About?
	4.3 Neoclassical Economics
		4.3.1 A Market Model with Rational Expectations
		4.3.2 The Ramsey-Cass-Koopmans Model
	4.4 Complexity Economics
		4.4.1 Complexity Economics and Neoclassical Economics
		4.4.2 Complexity Economics and Other Schools of Thought
	4.5 Methods of Complexity Economics
		4.5.1 Nonlinear Dynamics and Chaos
		4.5.2 System Dynamics
		4.5.3 Agent-Based Modeling
		4.5.4 Social Network Analysis
		4.5.5 Scenario Analysis
			Things to Remember
	References
5: The Economy as a Complex Adaptive System
	Guiding Questions
	5.1 Introduction
	5.2 Systemic Views on the Economy
	5.3 Economic Complexity
		5.3.1 Combination of Specialized Knowledge
		5.3.2 Measurement of Economic Complexity
		5.3.3 Empirical Results
	5.4 The Automobile and Dynamic Complexity
	5.5 A Conceptual Framework for Socio-technical Transitions
	5.6 Things to Remember
	References
6: Nonlinearity
	Guiding Questions
	6.1 Introduction
	6.2 Dynamical Systems
		6.2.1 Differential Equations and Difference Equations
		6.2.2 Dynamics of One-dimensional Continuous-time Systems
		6.2.3 Dynamics of Two-dimensional Continuous-time Systems
		6.2.4 Lotka-Volterra Population Models
		6.2.5 Bifurcations
		6.2.6 Catastrophes
		6.2.7 Iterated Maps
		6.2.8 Logistic Map and Chaos
		6.2.9 Lyapunov Exponent
	6.3 Business Cycles and Financial Instability
		6.3.1 The Goodwin Model of Business Cycles
		6.3.2 Great Moderation and Financial Crisis
		6.3.3 Minsky´s Financial Instability Hypothesis
		6.3.4 Keen´s Basic Minsky Model
		6.3.5 Keen´s Minsky Model with Money Creation
	6.4 Nonlinear Expectation Formation and the Business Cycle
		6.4.1 Modified Multiplier-Accelerator Model
		6.4.2 Properties of the Model
	6.5 Nonlinearity in Economics
		6.5.1 Applications of Nonlinearity
		6.5.2 Empirical Evidence
		6.5.3 Nonlinearity and Economic Worldviews
			Things to Remember
	References
7: Feedback, Circular Causality, and System Dynamics
	Guiding Questions
	7.1 Introduction
	7.2 Unintended Consequences
	7.3 Causality in the Social Sciences
		7.3.1 Explanation by Reasons, Causes, and Processes
		7.3.2 Types of Causes
		7.3.3 Modeling Causal Mechanisms
		7.3.4 Causality in Economics
	7.4 Feedback and System Dynamics
		7.4.1 Feedback
		7.4.2 Causal Loop Diagrams
		7.4.3 Modes of Dynamic Behavior
		7.4.4 Stock-flow Diagrams
		7.4.5 System Dynamics Models
	7.5 Infection and Diffusion
		7.5.1 The SIR Model
		7.5.2 Sentiment and Narratives
		7.5.3 The Bass Diffusion Model
	7.6 Dynamic Decision-making and Oscillations
		7.6.1 Stock Management Control Problems
		7.6.2 The Beer Distribution Game and the Bullwhip Effect
		7.6.3 System Dynamics Model of the Beer Distribution Game
	7.7 Collapse
		7.7.1 Exploitation of Renewable Common-pool Resources
		7.7.2 Collapse of Civilizations
	7.8 Causal Complexity
		Things to Remember
	References
8: Self-organization
	Guiding Questions
	8.1 Introduction
	8.2 Cellular Automata and Agent-Based Models
		8.2.1 Cellular Automata
		8.2.2 Agent-Based Models
	8.3 Self-Organization in the Natural World
		8.3.1 General Characterization
		8.3.2 The Ising Model from Statistical Physics
		8.3.3 A Cellular Automaton of a Chemical Oscillator
		8.3.4 An Agent-Based Model of Flocking Birds
	8.4 Self-Organization in the Human World
		8.4.1 Spatial Patterns
		8.4.2 Temporal Patterns
		8.4.3 Functional Patterns
	8.5 Models of Self-Organization in the Social Sciences
		8.5.1 Simple Contagion
		8.5.2 Social Influence and Complex Contagion
		8.5.3 Segregation and Spatial Organization
		8.5.4 Self-organized Industrial Symbiosis
	8.6 Spontaneous Order
		8.6.1 Hayek on Spontaneous Order
		8.6.2 Hayek´s Theory and Complexity Economics
	8.7 The Economy as a Dissipative Structure
		8.7.1 Thermodynamic Equilibrium and Entropy
		8.7.2 Dissipative Structures
		8.7.3 Dissipative Structures in Nature
		8.7.4 The Fourth Law of Thermodynamics
		8.7.5 Relevance for Economics
			Things to Remember
	References
9: Emergence, Levels, and Hierarchy
	Guiding Questions
	9.1 Introduction
	9.2 Levels and Hierarchies
		9.2.1 Hierarchies in the Social World
		9.2.2 Levels in the Economy
		9.2.3 Fallacy of Composition and Representative Agents
	9.3 Emergence
		9.3.1 Weak Emergence
		9.3.2 Strong Emergence
	9.4 Macrofoundations of Microeconomics
		9.4.1 Downward Causation
		9.4.2 The Emergence Paradigm in Sociology
		9.4.3 Multiple Equilibria and Indeterminacy
	9.5 Institutions in Economics
		9.5.1 New Institutional Economics
		9.5.2 Traditional Institutional Economics
		9.5.3 A Model of the Emergence of Norms
	9.6 Emergent Macroeconomics
		9.6.1 The Flaws of Neoclassical Macroeconomics
		9.6.2 The Generative View to Macroeconomics
		9.6.3 Stylized Facts
		9.6.4 An Agent-Based Business Cycle Model
		9.6.5 Other Agent-Based Macro Models
			Things to Remember
	References
10: Economic Evolution, Novelty, and Diversity
	Guiding Questions
	10.1 Introduction
	10.2 Novelty
		10.2.1 Some Theoretical Considerations on Novelty
		10.2.2 A Short History of Technical Inventions
	10.3 Evolution as Process and Theory
		10.3.1 Theory of Evolution
		10.3.2 Genetic Algorithms
		10.3.3 Fitness Landscape
		10.3.4 Virtual Creatures
		10.3.5 Cultural Evolution
	10.4 Coevolution of Behaviors and Social Institutions
	10.5 The Economy as an Evolutionary System
		10.5.1 Evolution as Computation
		10.5.2 Economic Evolution
		10.5.3 Evolutionary Economics and Complexity Economics
	10.6 Evolution of Knowledge
		10.6.1 Knowledge of an Individual Person
		10.6.2 Knowledge of an Organization
	10.7 Evolution of Social Technologies
		10.7.1 Cladistic Classification
		10.7.2 Evolutionary Systems Modeling
	10.8 Diversity
		10.8.1 Kinds of Diversity
		10.8.2 Framework for Analyzing Diversity
		10.8.3 Diversity, Complexity, and Coping with External Stress
	References
11: History and Path Dependence
	Guiding Questions
	11.1 Introduction
	11.2 Historical and Ahistorical Economics
		11.2.1 Economic Thinking vs. Historical Thinking
		11.2.2 The Arrow of Time
		11.2.3 Historical Economics
	11.3 Path Dependence
		11.3.1 Negative Definition of Path Dependence and Ergodicity
		11.3.2 Positive Definition of Path Dependence
		11.3.3 Reasons for Path Dependence
	11.4 Lock-in
		11.4.1 Some Examples of Lock-in
		11.4.2 Responses to the Liebowitz-Margolis Critique
		11.4.3 Types and Causes of Systemic Lock-in
	11.5 Path Formation and Path Change
		11.5.1 Critical Junctures
		11.5.2 A Framework for Path Formation
		11.5.3 Punctuated Equilibrium and Path Changes
	11.6 The History of the Automobile in the Twentieth Century
		11.6.1 Was the Gasoline-Fueled ICE a Good Choice?
		11.6.2 Decisive Factors for the Choice of the ICE
		11.6.3 Positive Feedback and Path Stabilization
	11.7 Modeling Future Transitions of the Automobile
		11.7.1 Model
		11.7.2 Application to Sustainable Road Transport
			Things to Remember
	References
12: Adaptation, Learning, and Behavior
	Guiding Questions
	12.1 Introduction
	12.2 Modes of Behavior and Learning
		12.2.1 Modes of Behavior
		12.2.2 A Conceptual Model of Consumer Behavior
		12.2.3 Types of Learning
	12.3 Rational Behavior and Maximization
		12.3.1 What Makes Decisions Difficult
		12.3.2 Computational Complexity
		12.3.3 As-if and Approximation
		12.3.4 Example of Intertemporal Utility Maximization
	12.4 Behavior and Learning of Boundedly Rational Individuals
		12.4.1 Heuristics and Biases
		12.4.2 Fast and Frugal Heuristics
		12.4.3 Learning
	12.5 Cultural Adaptation and Imitation
	12.6 Collaborative Problem-solving and Social Learning
		12.6.1 Collaborative Problem-Solving
		12.6.2 Social Learning
	12.7 Sense-making and Narratives
		Things to Remember
	References
13: Conclusion: What Does it all Mean?
	13.1 Introduction
	13.2 Ten Lessons for Complexity Thinking
	13.3 Why Does it Matter?
	13.4 The Complex Economy and Complexity Economics
		Complexity Lessons to Remember
	References
Index