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Improving the performance of an economic system: Controlling chaos

  • Michael Kopel

    ()

    (University of Technology, Department of Managerial Economics and Industrial Organization, Theresianumgasse 27/330, A-1040 Wien, Austria)

In this paper we use a simple model of evolutionary market dynamics to illustrate how chaotic behavior can be controlled by making small changes in a parameter that is accessible to the decision makers. This approach is commonly referred to as `targeting' - one can easily switch from a chaotic evolution of the market to any desired regular motion. We show that complex dynamics leads to inferior performance in our model and that an application of such a correction mechanism by the decision makers of the firms yields a considerable improvement in the system's economical properties in terms of profits and profitability. We present numerical simulations in order to illustrate the effectiveness of this method.

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Article provided by Springer in its journal Journal of Evolutionary Economics.

Volume (Year): 7 (1997)
Issue (Month): 3 ()
Pages: 269-289

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Handle: RePEc:spr:joevec:v:7:y:1997:i:3:p:269-289
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