Complexity Economics in a Time of Crisis: Heterogeneous Agents, Interconnections, and Contagion

Abstract

In this article, we consider a variety of different mechanisms through which crises such as COVID-19 can propagate from the micro-economic behaviour of individual agents through to an economy’s aggregate dynamics and subsequently spill over into the global economy. Our central theme is one of changes in the behaviour of heterogeneous agents, agents who differ in terms of some measure of size, wealth, connectivity, or behaviour, in different parts of an economy. These are illustrated through a variety of case studies, from individuals and households with budgetary constraints, to financial markets, to companies composed of thousands of small projects, to companies that implement single multi-billion dollar projects. In each case, we emphasise the role of data or theoretical models and place them in the context of measuring their inter-connectivity and emergent dynamics. Some of these are simple models that need to be `dressed’ in socio-economic data to be used for policy-making, and we give an example of how to do this with housing markets, while others are more similar to archaeological evidence; they provide hints about the bigger picture but have yet to be unified with other results. The result is only an outline of what is possible but it shows that we are drawing closer to an integrated set of concepts, principles, and models. In the final section, we emphasise the potential as well as the limitations and what the future of these methods hold for economics.

Bounded strategic reasoning explains crisis emergence in multi-agent market games

“…However, when such dynamics emerge endogenously, i.e. in the absence of external news, the traditional economic frameworks struggle to explain such stylized facts [20] or the deviation from equilibrium [21], demanding adequate models explaining the 'wildness' of market dynamics [22][23][24].…”

Entropy, Economics, and Criticality

“…This opinion piece argues for an alternative use of information theory that has been used earlier but has yet to make a significant impact in the field of economics or information theory: As a tool for the analysis of “critical phenomena” in economics. It follows on from earlier work I have completed applying the notion of critical phenomena to the abrupt breaks in time series data, such as market crashes, such as the 1987 crash [ 13 ], the Asian crisis of 1997 [ 14 ], the build up to the housing crisis of 2007 [ 15 ], and the COVID-19 crisis of 2020–2021 [ 16 ], all of which made use of information theory in its various forms. With collaborators, I have also explored the occurrence of bifurcations in micro-economics [ 17 , 18 ], as well as in housing markets [ 19 , 20 ], each using maximum entropy techniques.…”

Firm Heterogeneities, Multi-Dimensional Proximities, and Systematic Dynamics of M&A Partnering: Evidences from Transitional China

“…Demystifying the processes of corporate diversified strategies and investment behaviors will contribute to our understanding of the driving forces behind the operation and evolution of the socioeconomic system [4][5][6]. Particularly, a large body of literature has illustrated that corporate investment and relevant choices should be considered as a complex decision-making process, which is sensitive to contextual factors [7,8], place-specific attributes [1,9,10], organizational structures [11,12], and entrepreneurial behaviors [13,14]. Furthermore, there exist significant differences in decision-making mechanisms and locational implications of various investment modes, including greenfield investment (GI) and mergers and acquisitions (M&As), of individual corporations [15][16][17].…”