Economic Chaos in Deterministic Systems

Abstract

In the previous chapter, we investigated business cycles which are created by different economic mechanisms. However, the practically observed economic data hardly exhibit such regular oscillations. Economic variables often appear to fluctuate irregularly. This chapter will explain such endogenous “chaotic” economic phenomena. We show that there is order in chaos; the “random” economic behavior may have an underlying geometric form. Such phenomena are deterministic, generated by fixed rules that do not involve any elements of chance. In principle the future is completely determined by the past; in practice it is almost impossible to forecast the future precisely in a chaotic world.

All depends, then on finding out these easier problems and on solving them by means of devices as perfect as possible and concepts capable of generalization.

D. Hilbert