The Economy as a Complex Adaptive System

Lately, I’ve been reading up on emergent phenomena, systems in which complex behavior “emerges” from small scale interactions between relatively simple elements. Free market economies is a poster child of emergence–no one entity plans out every actor’s behavior. Rather, resource allocation decisions “emerge” from the local interactions of a large number of economic actors. I found some of the comments that Keith Downing made on free market economics in his book “Intelligence Emerging” fascinating, and figured I’d share them here for you all to appreciate.

The eye-opening fact that the world works without excessive global manipulation and without many guarantees may initially disappoint us, but the understanding of how predominantly local interactions produce sophisticated global results an turn… dismay into… fascination…. Though individual humans seem complex on their own, the mind-boggling complexity of society stems  not from the many billions of individuals but from the billions (or trillions) of interactions among them, many of which are (even in complete isolation) highly unpredictable.

Words to make any economist shed a tear of joy, indeed.

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