The Prehistory of Chaotic Economic Dynamics

Abstract

Chaotic dynamics were defined in the mathematical literature in the 1960s and 1970s (Smale, 1963; Sharkovsky, 1964; Oseledec, 1968; Li and Yorke, 1975) after a long prior development (Guckenheimer and Holmes, 1983; Rosser, 1991, ch. 2) dating from the late nineteenth century. The phenomenon was studied in meteorology (Lorenz, 1963), physics (Ruelle and Takens, 1971) and biology (May, 1974) before it was in economics. Indeed, it was the biologist Robert May (1976) who first suggested possible applications in economics, suggestions that were followed in several of the earliest of such studies, especially in business cycle theory by Benhabib and Day (1980 and 1982) and Stutzer (1980), although the earliest explicit model of chaotic economic dynamics in Cournot—Nash duopoly dynamics (Rand, 1978) was not influenced by May. Since then the phenomenon of chaotic dynamics and related concepts of complex dynamics have become increasingly influential throughout economic thought.

The author wishes to thank William A. Brock, Richard H. Day, Roger Guesnerie and Tönu Puu for useful materials, and David Colander, Alan Freeman and Vardaman Russell Smith for useful suggestions and comments. None of the above are responsible for any errors or misinterpretations contained in this paper.