Bounded Rationality And Economic Evolution
Economic evolution is said to occur when economic structures change. That is, when the institutional and/or technological rules of a society are replaced by new ones. As with evolutionary phenomena in other fields it is rather impossible to predict such a change. The reason is that economic theory lacks a rationale for structural changes. A large literature deals with this problem, with widely different answers.In this paper we present a simple model of how evolutionary change may be caused when the agents have bounded rationality. Each agent i has a model of the internal (and external) workings of the economy which is summarized, given that the current period is t, by a knowledge correspondence Ki (wt) Í W t+1, where w represents the state of the world and W the collection of those states.This Ki (wt) representing an evolving economy can be formalized in various forms. One of the possibilities we explore here is through economic ESO systems, which are basically cellular automata with endogenous rules of change that extend the notion of critically self-organized systems (SOC).
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|Date of creation:||05 Jul 2000|
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