(Friday, 22nd May 2015)
Title : Complexity and Behavioral Econoimcs
Economies and societies are fundamentally dynamically complex. Such complexity tends to lead to various forms or erratic dynamics, such as catastrophic discontinuities, chaotic dynamics, and others, even as complex dynamics underpin self-organization and the emergence of order out of lower level systems. In such a world, agents can only hope to have bounded rationality, as proposed by Herbert A. Simon, the father of behavioral economics as well as certain branches of complexity economics. To deal with bounded rationality Simon proposed that agents should use heuristics as a part of procedural rationality. Such heuristics, or rules of thumb, are best spread and shared for societies to achieve coordination and reasonably orderly dynamics when these become associated and entrenched through shared institutions that evolve in an emergent fashion. Such emergent institutions may be able to overcome the inherent tendencies to disorder and complex dynamics in societies and economies.
Bibliographical references :
Conlisk, John. "Why Bounded Ratioinality?" Journal of Economic Literature, 1996, 34, 1-64
Ostrom, Elinor, "Beyond Markets and States: Polycentric Governance of Complex Economic Systems," American Economic Review, 2010, 100, 641-672 (based on Nobel address)
Pingle, Mark and Richard H. Day, "Modes of Economizing Behavior," Journal of Economic Behavior and Organization, 1996, 29, 191-209
Herbert A. Simon, "The Architecture of Complexity," Proceedings of the American Philosophical Society, 1962, 106, 467-482