...
>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."
But according to John Gillott and Manjit Kumar:
"Our survey of some of the current literature on chaos theory has brought out three points. First, chaotic models often disregard key aspects of the reality they are supposed to describe. Second, in data on real systems, genuine sugns of chaos have proved very elusive. Finally, linear models plus "noise" are a credible atlernative to chaos theories. Altogether then there is little hard evidence that chaos theory provides a model for the workings of natural or social systems.'
Science and the Retreat from Reason, p 102 (Merlin edition)
Gillott and Kumar are especially sceptical about the attempt to impose complexity theory on economics. As they aregue the failure of equilibrium models in itself does not prove that complexity is a better fit for economics:
'What about complexity in economics? As with the attempt to place DNA in a "broader" context, and as with the use of chaos theory in the study of economic ttrends, no mechanisms have been explained by complexity, and no phenomena associated with complexity have been shown to exist.
At the Santa Fe institute, [Murray] Gell-Mann believes that the modelling has been a great achievement. But he admits that it has yet to come up with any hard proof:
[Apologetic defence of Santa Fe institute in here] ...
Young as it is, the institute has been in existence for more than ten years and many of the people at it have been trying for even longer to use complexity to model economics. In any case, that problems are very difficult does not excuse a fialure to make empirical sense of "self- organisation", "the edge of chaos", and other categories associated with complexity theory.
The British economist Paul Ormerod has made an attempt to apply complexity theory in his book The Death of Economics. Ormerod wittily castigates modern economics, He attacks the discipline for its blind reliance on linear models, for its blindness to real data, and for tis disdain for empirical proof. His alternative? Non-linear mathematics in general and complexity theory in particular.
However Ormerod does not field any answers. To very fundamental questions, like the roots of mass unemployment today, he has no replies. All he does is postulate a non-linear relationship between variables such as unemployment and rates of profit. Even if his mathematics is correct, he has offered no explanation of these relations.'
Science and the Retreat from Reason (which was published in the US last month by the Monthly Review Press), p 122-3
Sokal and Bricmont share this scepticism about the application of Chaos theory to society:
'Another major confusion is caused by mixing the mathematical theory fo chaos with the popular wisdom that small causes can have large effects "if Cleopatra's nose had been shorter", or the story of the missing nail that led to the collapse of an Empire. One constantly hears claims of chaos theory being "applied" to history or society. But human societies are complicated systems involving a vast number of variables, for which one is unable (at least at present) to write down in any sensible equations. To speak of chaos theory for these systems doe ntot ake us much further than the intuition already contained in popular wisdom.'
Intellectual Impostures, pp135-6 -- Jim heartfield