Economics is changing and in the last few years it has generated a number of new approaches. One of these—complexity economics—was pioneered in the 1980s and 1990s by a small team at the Santa Fe Institute led by W. Brian Arthur. The standard framework sees behavior in the economy as in an equilibrium steady state. People in the economy face well-defined problems and use perfect deductive reasoning to base their actions on. The complexity framework by contrast sees the economy as always in process, always changing. People try to make sense of the situations they face using whatever reasoning they have at hand, and together create outcomes they must individually react to anew. The resulting economy is not a well-ordered machine, but a complex evolving system that is imperfect and perpetually constructing itself anew.
The new approach is not just an extension of standard economics, nor does it consist of adding agent-based behavior to standard models. It gives a different, nonequilibrium view of the economy: one where actions and strategies constantly evolve, where time becomes important, where structures constantly form and re-form, where phenomena appear that are not visible to standard equilibrium analysis. This view gives us a world closer to that of political economy than to neoclassical theory, a world that is organic, evolutionary and historically-contingent.
William Brian Arthur