Chaos theory and economics.

[Chris Burford]

Last year an extremely sober book was published called the Impact of Chaos
on Science and Society (United Nations University Press, Tokyo). It is the
proceedings of an international conference held at Tokyo in 1991. In
connection with the controversy about post modernist analogies, it might be
helpful to get the flavour of strictly non-metaphorical interpretations of
the relevance of chaos theory to various studies.

In view of the main thrust of this list, I will quote from the conclusion
of the chapter on economics by Michele Boldrin from Madrid:

"The discovery of nonlinear dynamics and expecially of chaos has brought a
large amount of excitement into economics. In particular it has given us
the analytical instruments we needed to start thinking of economic
oscillations as endogenous phenomena, driven by market behaviours and not
by supernatural and stochastic forces. It has also provided the stimulus
for looking again at well-known economic and financial time series and to
question the received wisdom about their proper statistical interpretation.
Even if this has not produced any evidence that the theory of chaos may be
empirically relevant to understanding economic and financial data it has
opened the eyes of many analysts on the relevance that nonlinearities in
the economic mechanism may have in determining the behaviours we observe. 

... While I am still quite sceptical that a 'grand model' may emerge
unifiying these different approaches, I certainly believe that a continuing
research effort in these directions will reveal other important economic
factors behind the observed instability of markets. If all this will prove
the theory of chaos to be useful tool to analyse empirically verifiable
economic phenomena cannot be decided at this time."

Chris Burford

London