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The ‘Drop of Honey Effect’. A Note on Chaos in Economics

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  • Manuel Alberto M. Ferreira
  • José António Filipe

Abstract

Relationships in non-linear systems are unstable. Considering that, chaos theory aims to understand and to explain the unpredictable aspects of nature, social life, uncertainties, nonlinearities, disorders and confusion. Small differences in initial conditions - such as those due to rounding errors in numerical computation – may perform diverging outcomes tracking to systems’ chaotic behaviour. In these circumstances, long-term predictions become impossible in general. A brilliant metaphor on this is the so-called butterfly effect, about the way how the “flapping of the wings of a butterfly” may cause huge phenomena either they are physical, atmospheric or social. In this work, the drop of honey effect metaphor is proposed for representing this kind of butterfly effect for chaos in social phenomena, in particular in economics and politics.

Suggested Citation

  • Manuel Alberto M. Ferreira & José António Filipe, 2012. "The ‘Drop of Honey Effect’. A Note on Chaos in Economics," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 2(4), pages 350-350.
    • Handle: RePEc:ers:ijfirm:v:2:y:2012:i:4:p:350
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    References listed on IDEAS

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    1. Trond Bjorndal & Jon M. Conrad, 1987. "The Dynamics of an Open Access Fishery," Canadian Journal of Economics, Canadian Economics Association, vol. 20(1), pages 74-85, February.
    2. José A. Filipe & Manuel A. Ferreira & Manuel Coelho, 2008. "The Relevance of Chaos Theory to Explain Problems of Overexploitation in Fisheries in Japanese Seaports," Working Papers Department of Economics 2008/24, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    3. Bjorndal, Trond, 1987. " Production Economics and Optimal Stock Size in a North Atlantic Fishery," Scandinavian Journal of Economics, Wiley Blackwell, vol. 89(2), pages 145-164.
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