Complexity and Economics

Economics has long been on the receiving end of many jokes and critiques, some deserved and some not. They concern the inability of the profession to adequately examine it object of its study, economies and markets, or to accurately predict their behavior. While to a certain extent that is true, it is also true that economic analysis has yielded many excellent analyses and beneficial results. However, economists themselves would acknowledge that there is always room for improvement, especially as the seemingly solved problems of liberal economics have yielded long-term costs that have not yielded to traditional analysis. This thesis of this blog is that traditional philosophy, politics, and economics (PPE) could benefit by an increased analytic emphasis on complexity generally and complex social systems specifically. This quick hit introduces the three major scholars that have influenced your correspondent: Herbert Simon, Jay Forrester, and Richard Feynman. The resulting framework is an MIT perspective as each of the three scholars has a significant connection to the Massachusetts Institute of Technology (MIT). Simon gave the Karl Taylor Compton lecture at MIT in 1968, which integrates scientific, cultural, and philosophical concerns. He won the Nobel Prize in economics in 1978. Forrester arrived at MIT in 1939 and stayed there for his entire career where he invented core memory and system dynamics, a simulation methodology that can be used to integrate scientific, cultural, and philosophical concerns. He won the IEEE Medal of Honor in 1972. Richard Feynman was an undergraduate at MIT before earning his Ph.D. at Princeton, teaching at the California Institute of Technology (CalTech), and winning the Nobel Prize in physics in 1965.

Herbert Simon earned his Ph.D. from the University of Chicago in social sciences and made major contributions in experimental psychology, artificial intelligence, and economics. His thoughts on complexity are expressed in The Sciences of the Artificial (MIT Press), which your correspondent finds difficult to read because every page is so packed with still fresh and important ideas. Most fundamental is Simon’s notion of bounded rationality, which states that decisions are made by few and certain data, and that if the decision maker is under stress, then decisions are based on even fewer and more certain data. Bounded rationality is based on the idea that cognition is a limited and small compared to the complexity of the social systems in which decisions find themselves. Simon’s observation is supported by both computational theory and psychological experiments, and builds on the earlier complexity work of Friedrich von Hayek, who won the Nobel Prize in economics in 1974.

When discussing complexity, it is easy to conclude after repeating the word “complexity” frequently that one has a deep understanding of complexity, which is not the case. Jay Forrester, an electrical engineer, observed that social systems exhibited feedback relationships that confounded cognition, that is, made social systems hard to predict. He created a computer-based simulation methodology that accounted for these feedback relationships as well as stock-flow (i.e., integrative) and nonlinear relationships that combined to make social systems complex. He called the resulting methodology “system dynamics” and developed it from the late fifties until his death in 2016.

Richard Feynman, who has been called the best mind since Einstein, said many smart things about complex systems that can be applied to complex social systems, and two stand out. First, Feynman defined science in three steps: (1) make a guess (theory); (2) test the guess (experiment); and (3) if the guess doesn’t work out, then it’s wrong. It doesn’t matter how beautiful the guess is, who made the guess, or where they went to school. If the guess doesn’t agree with experiment, then it’s wrong, and that’s the key to science. Second, Feynman was asked how he would create an anti-gravity machine. He responded that because such a machine disagreed with what he knew to be true about physics, he would immediately give up. This answer did not please the questioner. Feynman continued that the game he played was a very interesting one, which was imagination in a straitjacket because what he imagined had to agree with everything he knew about physics, which was a lot. Given the stakes, costs, and consequences of government policy—that is, wars, recessions, disease, etc.–your correspondent believes that policies should be crafted with the same care that Simon, Forrester, and Feynman took with their theories, papers, and scholarship. This is demonstrably not the case, which will be a continuing and ongoing subject of analysis.

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