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A new view of the economy as an evolving,
complex system has been pioneered at the Santa Fe Institute
over the last ten years. This volume is a collection of
articles that shape and define this view -- a view of the
economy as emerging from the interactions of individual
agents whose behavior constantly evolves, whose strategies
and actions are always adapting.
The traditional framework in economics portrays
economic activity within an equilibrium steady state.
The interacting agents in the economy are typically homogeneous,
solve well-defined problems using perfect rationality, and
act within given legal and social structures. The complexity
approach, by contrast, sees economic activity as continually
changing -- continually in process. The interacting
agents are typically heterogeneous, they must cognitively
interpret the problems they face, and together they create
the structures -- markets, legal and social institutions,
price patterns, expectations -- to which they individually
react. Such structures may never settle down. Agents may
forever adapt and explore and evolve their behaviors within
structures that continually emerge and change and disappear
-- structures these behaviors co-create. This complexity
approach does not replace the equilibrium one -- it complements
it.
The papers collected here originated at
a recent conference at the Santa Fe Institute, which was
called to follow up the well-known 1987 SFI conference organized
by Philip Anderson, Kenneth Arrow, and David Pines. They
survey the new study of complexity and the economy. They
apply this approach to real economic problems and they show
the extent to which the initial version of the 1987 conference
has come to fruition.
W. Brian Arthur is Citibank Professor
at the Santa Fe Institute. From 1983 to 1996 he was Dean
and Virginia Morrison Professor of Population Studies and
Economics at Stanford University. Arthur has been associated
with the Santa Fe Institute since 1987; he directed its
first program: the economy as an evolving, complex system.
He currently serves on SFI's science board and its board
of trustees and is well known in economics for his work
on increasing returns and path dependence.
Steven N. Durlauf is Professor of Economics
at the University of Wisconsin at Madison and since 1996
Co-Director of the economics program at the Santa Fe Institute.
He received his B.A. in economics from Harvard in 1980 and
his Ph.D. in economics from Yale in 1986. He has published
widely in the areas of macroeconomics, econometrics, and
income inequality.
David A. Lane is Professor of Statistics
in the Faculty of Economics at the University of Modena
in Italy. He is a member of the external faculty and the
science board of the Santa Fe Institute and is a past co-director
of the Institute's economics program.
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