Prior Commitment and Uncertainty in Complex Economic Systems: Reinstating History in the Core of Economic Analysis

27 Pages Posted: 21 Aug 2017

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John Foster

University of Queensland - School of Economics

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Date Written: September 2017

Abstract

Conventional ‘neoclassical’ economics is very useful in understanding how prices are determined but less so as a general basis for understanding the economic behaviour we observe. What is not taken into account is that economic systems are dissipative structures that are complex, but incompletely connected, networks of rules. It is explained why a degree of prior commitment in decision‐making is inevitable in complex economic systems and the implications of this are examined. It is argued that economic analysis must begin with the reality that choices are made in relation to pre‐existing commitments, both with regard to economic structures built in the past and to prevailing systems of belief, when deciding what to do in a future characterised by uncertainty. It is explained how conventional economic incentives can be dealt with in such a complex historical context building upon the neoclassical perspective of Alfred Marshall over a century ago. It is argued that econometric modelling remains viable and useful in understanding behaviour in complex economic systems. It is shown how we can design and interpret time series econometric modelling from a complex systems perspective.

Suggested Citation

Foster, John, Prior Commitment and Uncertainty in Complex Economic Systems: Reinstating History in the Core of Economic Analysis (September 2017). Scottish Journal of Political Economy, Vol. 64, Issue 4, pp. 392-418, 2017, Available at SSRN: https://ssrn.com/abstract=3021412 or http://dx.doi.org/10.1111/sjpe.12138

John Foster (Contact Author)

University of Queensland - School of Economics ( email )

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