Università degli Studi di Torino

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ECONOMIA E COMPLESSITA’ 

Doctoral Programme in

ECONOMICS AND COMPLEXITY 

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“Awareness of the ubiquity of complexity is transforming the way that we think about economics”

                                                           B. Rosser (2003)

 

The PhD Programme in Economics of Complexity and Creativity started in 2002 and is organised in cooperation with the University of Piemonte Orientale . It now constitutes one of the three fields of specialization of the newly-founded ‘V. Pareto’ Doctorate School in Economics, together with the PhD Programme in Economics and the PhD Programme in Statistics and Applied Mathematics. Part of the activities take place at the Collegio Carlo Alberto.

 

The programme is based on the new streams of thought that focus on the study of the complexity of economic phenomena. Its goal is to combine high standards of teaching and research with a critically informed pluralism in method. It is our conviction that a full understanding of the complexity of the economic process is favoured by a pluralistic view of economics, by a systematic reflection on the concepts and theories employed by economists, by the appreciation of the intellectual history of the discipline and by a multidisciplinary approach.

The PhD  Programme in Economics of Complexity and Creativity  cooperates with other academic institutions, such as :

·         Centre for Research on Innovation and Competition (CRIC), University of Manchester .

·         Institut de Droit et d'Economie de la Firme et de l'Industrie (IDEFI), Université Nice Sophia Antipolis.

·         Centre for Research in Social Simulation (CRESS), University of Surrey.

·         Max Planck Institute of Economics, Jena .

·         Erasmus Institute for Philosophy and Economics, Erasmus University Rotterdam

All our PhD students are encouraged to spend relevant periods of research  at these institutions.

 

Complexity and Creativity in Economics

The conception of economics prevailing after the Second World War has maintained that economics - economics par excellence being identified with the Walrasian approach - must be based on deductive models, consistent with standard economic principles and incorporating high doses of mathematics, in order to be econometrically tested and directly applied to reality, and to search for general results able to hold for all times and institutional contexts.

Such mainstream economic theory, while holding that an economy is a system composed by interacting agents, has adopted some very strict assumptions concerning the functioning of the economic process and  the behaviour of the decision makers. These assumptions tend to guarantee predictability and certainty of results to the price of essentially expunging from the subject-matter of economic theory the phenomena of evolution, change, growth and development. Twentieth-century idea of economics has neglected complexity and traced precisely defined borders where in the real world borders are uncertain, and concepts unable to be captured in one precise definition.

In the last decades there has been an increasing awareness of the fact that economic data provide little evidence of linear, simple dynamics, and of lasting convergence to stationary states or regular cyclical behaviour, and that economic reality is rife with nonlinearity, discontinuity, and a variety of phenomena that are not so easily predicted or understood, and that the order of the economy appears to emerge from the complex interactions that constitute the evolutionary process of the economy. This body of literature has come to be known as ‘complexity theory’. It has resulted in a critical reassessment of the twentieth century’s economic theory that has led to question the ‘Walrasian’ mainstream approach in favour of a Marshallian-type view of economic phenomena.

In fact, the roots of this new conception of economics can be found in economists like Marshall, Keynes, Hayek and Simon, who had a live sense of the complexity of the interrelation between economic phenomena and of the role of history and institutions in their evolution. They expressed a reasonable preference for a discursive, sophisticatedly informal and context-based style of exposition and felt that dealing with economic complexity fundamentally implies using a plurality of languages.

Since the 1960s the increasing availability of new computational techniques (such as agent-based modelling and artificial intelligence) and the development of non-linear mathematics (such as chaos and catastrophe theory) has allowed to explore the implications of such awareness of the complexity of economic phenomena.

In particular, the complexity of a system implies the following features:

·         Complex systems exhibit a rich variety of nonlinear dynamics; nonlinear dynamics in economics are the result of the fact that the economy is made up of a large number of heterogeneous, interconnected agents with limited cognitive resources who access different information, experiment with different belief systems and adapt their response to the environment and to other agents behaviour.

·         Complex system are open and dissipative. The dissipative character of the economy has a number of implications. The most obvious pertain to its dependence from irreversible consumption of natural resources and the generation of downgraded residuals as are extensively studied within environmental economics. There are however two other implications which are more directly relevant for economic theory from a general point of view. The first is that, when the analysis has a bearing on decisions concerning the future beyond the very short term, economic systems must be understood as an evolving process. The second stems from the fact that dissipative structures tend to self-organise. This implies that macroscopic structures arise from the nonlinear interaction of microscopic elements – without the need of design from any outside agent - when the interaction of the dissipative systems with its environment reaches some critical threshold.

·         Complex systems respond adaptively to change, in ways that tend to increase their probability of persisting.

·         Complex systems have irreversible histories, i.e. dynamical processes are intrinsically historical.

The acceptance of the complexity paradigm in the economic theory entails that:

·         Agents – which are no longer amenable to a representative agent endowed with Olympic rationality – do not operate only by means of adjustments in prices and quantities as in the traditional theory, but rather:

·         They are actors which are only boundedly rational but that are gifted with creativity. They can innovate and react, by altering their preferences, to changes in the economic and social environment.

Therefore, the adoption of the theory of complexity allows to analytically encompass a range of human behaviours which is much wider than those that are accounted for in mainstream economics and, above all, permits to include creativity as an inherent and crucial characteristic of human action that plays a major role both at the individual and at the social level.

Economic theory is thus enriched by analytical tools for addressing the processes of evolution, change, growth and development. However, admitting the pervasive presence of dynamic complexity also implies that economic theory has to partly renounce the presumption of succeeding in anticipate the outcomes of dynamic processes.