The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Economy as a Complex System

  • Alan Kirman
Reference work entry


Complex systems are composed of particles or agents which interact directly with each other. The rules for this interaction may be very simple and may not reflect the sort of rationality associated with standard economic models. Interaction is not through some exogenously given market, nor does it depend on the complicated reasoning involved in game theory. A complex system exhibits emergent aggregate properties as it organizes itself, and these can explain important phenomena such as bubbles, herding behaviour, and segregation. In each case the aggregate state of the economy or market could not be predicted from the average behaviour of the individuals.


Agent-based models Bubbles Chaos Clusters Complex systems Complexity Computational complexity Coordination Deterministic chaos Economy as a complex system Econophysics Emergence Equilibrium Ergodicity Evolution Excess volatility Financial market contagion Forecasting Game theory Herding Imperfect competition Law of large numbers Minority game Neighbourhood effects Prisoner’s Dilemma Punctuated equilibria Residential segregation Social interaction Social networks Statistical mechanics Statistical physics Steady state Tit for tat Tournaments 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Alan Kirman
    • 1
  1. 1.