P1:TIX JWST133-fm JWST133-Zambelli 11-14-2011 :837 PrinterName:YettoCome Nonlinearity, Complexity and Randomness in Economics.
P1:TIX JWST133-fm JWST133-Zambelli 11-7-2011 :1023 PrinterName:YettoCome CONTENTS Notes on Contributors vii 1. Introduction 1 StefanoZambelli 2. Towards an Algorithmic Revolution in Economic Theory 7 K.VelaVelupillai 3. An Algorithmic Information-Theoretic Approach to the Behaviour of Financial Markets 37 HectorZenilandJean-PaulDelahaye 4. Complexity and Randomness in Mathematics: Philosophical Reflections on the Relevance for Economic Modelling 69 SundarSarukkai 5. Behavioural Complexity 85 SamiAl-Suwailem 6. Bounded Rationality and the Emergence of Simplicity Amidst Complexity 111 CasseyLee 7. Emergent Complexity in Agent-Based Computational Economics 131 Shu-HengChenandShuG.Wang 8. Non-Linear Dynamics, Complexity and Randomness: Algorithmic Foundations 151 K.VelaVelupillai.
P1:TIX JWST133-fm JWST133-Zambelli 10-14-2011 :782 PrinterName:YettoCome Notes on Contributors Stefano Zambelli University of Trento K. Vela Velupillai University of Trento Hector Zenil IHPST, Universite´ de Paris (Panthe´on-Sorbonne) Dept. of Computer Science, University of Sheffield Jean-Paul Delahaye Laboratoire d’Informatique Fondamentale de Lille (USTL) Sundar Sarukkai Manipal Centre for Philosophy and Humanities, Manipal University Sami Al-Suwailem Islamic Development Bank Group Cassey Lee School of Economics, University of Wollongong Shu-Heng Chen National Chengchi University Shu G. Wang National Chengchi University Toichiro Asada Chuo University Carl Chiarella University of Technology, Sydney Peter Flaschel Bielefeld University Tarik Mouakil University of Cambridge Christian Proan˜o New School University Willi Semmler New School University Joseph L. McCauley University of Houston Donald A.R. George University of Edinburgh.
P1:TIX/XYZ P2:ABC JWST133-c01 JWST133-Zambelli 10-13-2011 :721 PrinterName:YettoCome 1 INTRODUCTION Stefano Zambelli 1. Background,MotivationandInitiatives Almost exactly two years ago,1 Vela Velupillai wrote to the Editor of the Journalof Economic Surveys, Professor Donald George, with a tentative query, in the form of a proposal for a Special Issue on the broad themes of Complexity, Nonlinearity and Randomness. Donald George responded quite immediately – on the very next day, in fact – in characteristically generous and open-minded mode as follows: ‘Special Issue topics for 2009 and 2010 are already decided, and 2011 is the Journal’s 25th year so we are intending some form of “special Special Issue” to mark that. However I’ll forward your email to the other editors and see what they think. Your proposed topic is certainly of interest to me (as you know!)’ By the time the Conference was officially announced, in the summer of 2009, the official title had metamorphosed into Nonlinearity, Complexity and Randomness, but without any specific intention to emphasise, by the reordering, any one of the triptych of themes more than any other.2 On the other hand, somehow, the dominant, even unifying, theme of the collection of papers viewed as a whole turned out to be one or another notion of complexity, with Nonlinearity and Randomness remaining important, but implicit, underpinning themes.3 There were, however, two unfortunate absences in the final list of contributors at the Conference. Professor To¨nu Puu’s participation was made impossible by admin- istrative and bureaucratic obduracy.4 Professor Joe McCauley’s actual presence at the Conference was eventually made impossible due to unfortunate logistical details of conflictingcommitments.However,ProfessorMcCauleywasabletopresentthepaper, which is now appearing in this Special Issue at a seminar in Trento in Spring, 2010.
P1:TIX/XYZ P2:ABC JWST133-c02 JWST133-Zambelli 10-13-2011 :1270 PrinterName:YettoCome 2 TOWARDS AN ALGORITHMIC REVOLUTION IN ECONOMIC THEORY K. Vela Velupillai 1. AFoundationalPreamble Hilbert’svisionofauniversalalgorithm to solve mathematical theorems1 required a unification of Logic, Set Theory and Number Theory. This project was initiated by Frege, rerouted by Russell, repaired by Whitehead, derailed by Go¨del, restored by Zermelo, Frankel, Bernays and von Neumann, shaken by Church and finally demolished by Turing. Hence, to say that the interest in algorithmic methods in mathematics or the progress in logic was engendered by the computer is wrong way around. For these subjects it is more correct to observe the revolution in computingthatwasinspiredbymathematics.
P1:TIX/XYZ P2:ABC JWST133-c03 JWST133-Zambelli 10-13-2011 :1273 PrinterName:YettoCome 3 AN ALGORITHMIC INFORMATION- THEORETIC APPROACH TO THE BEHAVIOUR OF FINANCIAL MARKETS Hector Zenil and Jean-Paul Delahaye 1. Introduction Oneofthemainassumptionsregardingpricemodellingforoptionpricingisthatstock prices in the market behave as stochastic processes, that is, that price movements are log-normally distributed. Unlike classical probability, algorithmic probability theory has the distinct advantage that it can be used to calculate the likelihood of certain eventsoccurringbasedontheirinformationcontent.Weinvestigatewhetherthetheory ofalgorithmicinformationmayaccountforsomeofthedeviationfromlog-normalof the data of price movements accumulating in a power-law distribution.
P1:TIX/XYZ P2:ABC JWST133-c04 JWST133-Zambelli 10-13-2011 :1275 PrinterName:YettoCome 4 COMPLEXITY AND RANDOMNESS IN MATHEMATICS: PHILOSOPHICAL REFLECTIONS ON THE RELEVANCE FOR ECONOMIC MODELLING Sundar Sarukkai Complexity is an important paradigm across disciplines in the sciences, including economics. This paper will explore some philosophical ideas related to complexity.
P1:TIX/XYZ P2:ABC JWST133-c05 JWST133-Zambelli 10-13-2011 :1278 PrinterName:YettoCome 5 BEHAVIOURAL COMPLEXITY Sami Al-Suwailem 1. Introduction Studies of complexity economics (CE) have been growing increasingly in recent years.Thesestudiesemphasizehowtheeconomyisdynamic,innovative,adaptiveand persistently in disequilibrium, as compared to the neoclassical view of equilibrium, stable and static economy (e.g. Beinhocker, 2006).
P1:TIX/XYZ P2:ABC JWST133-c06 JWST133-Zambelli 10-13-2011 :959 PrinterName:YettoCome 6 BOUNDED RATIONALITY AND THE EMERGENCE OF SIMPLICITY AMIDST COMPLEXITY Cassey Lee ‘You cannot successfully use your technical knowledge unless you are a fairly educated person, and, in particular, have some knowledge of the whole field of the social sciences as well as some knowledge of history and philosophy. Of course real competence in some particular field comes first. Unless you really know your economics or whatever your special field is, you will be simply a fraud. But if you know economics and nothing else, you will be a bane to mankind, good, perhaps, for writing articles for other economists to read, but for nothing else’. (Hayek, 1991, p. 38) ‘We feel clearly that we are only now beginning to acquire reliable material for welding together the sum total of all that is known into a whole; but on the other hand, it has become next to impossible for a single mind fully to command more thanasmallspecializedportionofit.Icanseenootherescapefromthisdilemma than that some of us should venture to embark on a synthesis of facts and theories, albeit with second-hand and incomplete knowledge of some of them – and at the risk of making fools of ourselves’. (Schro¨dinger, 1967, p. 1) 1. Introduction The notion of rationality and the way in which it is assumed and applied in eco- nomics is a much debated topic within the discipline itself and beyond. The vast body of literature under the headings of ‘behavioural economics’ and ‘economics and psychology’ have attempted to make sense of the extent to which and the manner in which rationality inreality differsfromrationality as itis assumed ineconomics. The Nonlinearity,ComplexityandRandomnessinEconomics,FirstEdition.
P1:TIX/XYZ P2:ABC JWST133-c07 JWST133-Zambelli 10-13-2011 :962 PrinterName:YettoCome 7 EMERGENT COMPLEXITY IN AGENT-BASED COMPUTATIONAL ECONOMICS Shu-Heng Chen and Shu G. Wang 1. MotivationandIntroduction 1.1 EmergenceinanIntegratedFramework Ifweweretoregardeconomicsasbeingstudiedinaninterdisciplinaryscientificcon- text,thenitwouldbeamazingtoperceivehoweconomicshasconstantlyexpandedand become intertwined with other old and new disciplines. The expansion does not just refer to the enlargement of the application domains, as Gary Becker already pointed out a long while ago (Becker, 1981, 1996), but it also denotes the consolidation of the foundations of economics via the enrichment contributed by other disciplines.