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New perspectives on realism, tractability, and complexity in economics

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  • Smith, Peter

Abstract

Fuzzy logic and genetic algorithms are used to rework more realistic (and more complex) models of competitive markets. The resulting equilibria are significantly different from the ones predicted from the usual static analysis; the methodology solves the Walrasian problem of how markets can reach equilibrium, starting with firms trading at disparate prices. The modified equilibria found in these complex market models involve some mutual self-restraint on the part of the agents involved, relative to economically rational behaviour. Research (using similar techniques) into the evolution of collaborative behaviours in economics, and of altruism generally, is summarized; and the joint significance of these two bodies of work for public policy is reviewed. The possible extension of the fuzzy/ genetic methodology to other technical aspects of economics (including international trade theory, and development) is also discussed, as are the limitations to the usefulness of any type of theory in political domains. For the latter purpose, a more differentiated concept of rationality, appropriate to ill-structured choices, is developed. The philosophical case for laissez-faire policies is considered briefly; and the prospects for change in the way we ‘do economics’ are analysed.

Suggested Citation

  • Smith, Peter, 2008. "New perspectives on realism, tractability, and complexity in economics," MPRA Paper 10899, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:10899
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    File URL: https://mpra.ub.uni-muenchen.de/10899/1/MPRA_paper_10899.pdf
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    References listed on IDEAS

    as
    1. LeBaron, Blake, 2000. "Agent-based computational finance: Suggested readings and early research," Journal of Economic Dynamics and Control, Elsevier, vol. 24(5-7), pages 679-702, June.
    2. Dawid, Herbert, 1999. "On the convergence of genetic learning in a double auction market," Journal of Economic Dynamics and Control, Elsevier, vol. 23(9-10), pages 1545-1567, September.
    3. Timothy Besley & Robin Burgess, 2003. "Halving Global Poverty," Journal of Economic Perspectives, American Economic Association, vol. 17(3), pages 3-22, Summer.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Fuzzy logic; genetic algorithms; complexity; emergence; rationality; ill-structured choice; equilibrium; Walrasian Crier; paradigm change;

    JEL classification:

    • B0 - Schools of Economic Thought and Methodology - - General
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology

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