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The Signature of Risk: Agent-based Models, Boolean Networks and Economic Vulnerability

Ron Wallace

Abstract

Neoclassical economic theory, which still dominates the science, has proven inadequate to predict financial crises. In an increasingly globalised world, the consequences of that inadequacy are likely to become more severe. This article attributes much of the difficulty to an emphasis on equilibrium as an idealised property of economic systems. Alternatively, this article proposes that actual economies are typically out of balance, and that any equilibrium which may exist is transitory. That single changed assumption is central to complexity economics, a view which is presented in detail. It is suggested that economic crises will be most effectively avoided when economists utilise methods, grounded in complexity theory, which can identify threat in an early stage. As a programmatic example, the use of Agent-Based Models (ABMs) combined with Boolean networks (BNs), is defended as a promising method for recognising vulnerability.

Published on 31 Mar 2017 in Economic Thought Vol 6, No 1, 2017