Visualizing the Invisible Hand of Markets: Simulating Complex Dynamic Economic Interactions

Jaffé, Klaus

doi:10.1002/isaf.1368

Cited by 9 publications

(18 citation statements)

References 21 publications

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“…These results support the proposition of Adam Smith that markets are ruled by an invisible hand that coordinates the different kind of labor rendering markets efficient. Specifically, simulations in complex economic setting showing omnipotent agents performing all tasks produced less aggregate wealth than simulations where three different agents performed different tasks, such as farming, mining, and trading [18]. This counter-intuitive result was partly due to the fact that optimal prices and conditions for trade were different for each agent, depending on its spatial position in the virtual world.…”

Section: The Modelmentioning

confidence: 97%

“…The agent based computer simulation model Sociodynamica is a freely available agent based simulation model, first written in Visual Basic, and has previously been used to study the effect of altruism and altruistic punishment on aggregate wealth accumulation in artificial societies and to grasp the dynamics of complex markets (see [17][18][19] and references therein). These models are completely mechanical in nature, and individual incentives may emerge trough an evolutionary process that makes agents with the right combination of incentives or behaviors survive and those with the wrong combination to become eventually extinct.…”

Section: The Modelmentioning

confidence: 99%

“…The average age is a measure of the probability of survival of individuals in the population, but other measures are possible [18]. The aim was to pinpoint the features that allowed the emergence of the synergies of the market due to division of labor.…”

Section: The Modelmentioning

confidence: 99%

“…This might happen in simulations of economies where realistic price dynamics were included that showed that division of labor was the strongest predictor of successful economic performance [18]. However, it was not clear in these simulations, if this effect of division of labor was exerted through the price dynamics of the economy or through other means.…”

Section: Introductionmentioning

confidence: 99%

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The “Invisible Hand” of Economic Markets Can Be Visualized through the Synergy Created by Division of Labor

Jaffé¹

2017

Complexity

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Inspired by Adam Smith and Friedrich Hayek, economists promoting free markets postulate the existence of invisible forces that drive economic growth. Simulations with Sociodynamica allowed the emergence of market forces in virtual economies, showing that the synergistic working of division of labor in complex settings favors a stable state where all actors benefit (winwin interaction). By visualizing the detailed dynamics underlying this phenomenon in a simple virtual economy, the elements underpinning the synergistic effect on economic output produced by the division of labor between agents could be dissected. These are heterogeneity or spatial or temporal heterogeneous environment and/or agents; complementary activities of agents, with divergent optimization options; and synchrony. Markets help synchronize agent's actions. The larger the contact horizon between participants of the market is, the more efficient the market forces act. These features allow for social processes that increase the information available and increase simultaneously the capacity of producing useful economic work, that is, synergy. This insight, although trivial if viewed a posteriori, improves our understanding of the source and nature of synergies in real economic markets and might render economic and natural sciences more consilient.

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Section: The Modelmentioning

confidence: 97%

Section: The Modelmentioning

confidence: 99%

Section: The Modelmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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The “Invisible Hand” of Economic Markets Can Be Visualized through the Synergy Created by Division of Labor

Jaffé¹

2017

Complexity

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“…The force behind AdamSmith's invisible hand of the market that triggers the complex market dynamics intuitively described by Hayek, is social synergy as described here. This can be evidenced using computer simulations (Jaffe 2015) and robot swarms (Ferrante et al 2015). It is the specialization of labor that allows complementary interactions to produce ever stronger synergies that confer non-linear economic advantages to societies that allow and foment individual liberty and division of labor (Jaffe 2014a).…”

Section: Social Synergymentioning

confidence: 99%

Synergy Drives the Evolutionary Dynamics in Biology and Economics

Jaffé

2016

First Complex Systems Digital Campus World E-Conference 2015

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W.D. Hamilton's Inclusive Fitness Theory explains the conditions that favor the emergence and maintenance of social cooperation. Today we know that these include direct and indirect benefits an agent obtains by its actions, and through interactions with kin and with genetically unrelated individuals. That is, in addition to kin-selection, assortation or homophily, and social synergies drive the evolution of cooperation. An Extended Inclusive Fitness Theory (EIFT) synthesizes the natural selection forces acting on biological evolution and on human economic interactions by assuming that natural selection driven by inclusive fitness produces agents with utility functions ( that exploit assortation and synergistic opportunities, so that This means that any utility functions (must include in its calculations the benefits accrued to the agents directly (, through interactions with others () and through synergies triggered by its behavior (. This formulation allows to estimate sustainable cost/benefit threshold ratios of cooperation among organisms and/or economic agents, using existent analytical tools, illuminating our understanding of the dynamic nature of society, the evolution of cooperation among kin and non-kin, inter-specific cooperation, co-evolution, symbioses, division of labor and social synergies. EIFT helps to promote an interdisciplinary cross fertilization of the understanding of synergy by, for example, allowing to describe the role for division of labor in the emergence of social synergies, providing an integrated framework for the study of both, biological evolution of social behavior and economic market dynamics.

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Defining synergy thermodynamically using quantitative measurements of entropy and free energy

Jaffé

Febres²

2016

Complexity

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Synergy is often defined as the creation of a whole that is greater than the sum of its parts. It is found at all levels of organization in physics, chemistry, biology, social sciences, and the arts. Synergy occurs in open irreversible thermodynamic systems making it difficult to quantify. Negative entropy or negentropy (N ) has been related to order and complexity, and so has work efficiency, information content, Gibbs Free Energy in equilibrium thermodynamics, and useful work efficiency in general (W ). To define synergy in thermodynamic terms, we use the quantitative estimates of changes in N and W in seven different systems that suffer process described as synergistic. The results show that synergistic processes are characterized by an increase in N coupled to an increase in W . Processes not associated to synergy show a different pattern. The opposite of synergy are dissipative processes such as combustion where both N and W decrease. The synergistic processes studied showed a relatively greater increase in N compared to W opening ways to quantify energy-or information-dissipation due to the second law of thermodynamics in open irreversible systems. As a result, we propose a precise thermodynamic definition of synergy and show the potential of thermodynamic measurements in identifying, classifying and analysing in detail synergistic processes. V C 2016 Wiley Periodicals, Inc. Complexity 000: 00-00, 2016Key Words: synergy; entropy; negentropy; evolution INTRODUCTION S ynergy is often defined as the creation of a whole that is greater than the sum of its parts. It is found at all levels of organization in physics, chemistry, biology, social sciences, and the arts. The term, we believe, is equivalent to emergence [1], self-organization [2], hierarchical organization [3] and other concepts [4,5] related during the last few decades to phenomena that have traditionally described as synergy. The term synergy, was first used in neuromuscular physiology [6], and was fully developed as a process involved in self-organization by Haken [7]. No unambiguous definition of synergy exists, but several nonadditive phenomena might qualify as synergy. Wikipedia defines it as the creation of a whole that is greater than the simple sum of its parts. That is, 1 1 1 > 2. This phenomena seems to be quite common in nature [8][9][10], but a precise way of tackling the study of this phenomena has yet to be developed. An instructive example is the transformation of oxygen and hydrogen atoms to form a molecule of water, which has often been presented as a synergistic process. Certainly, the properties of water cannot be deduced from those of oxygen and hydrogen atoms: they differ radically. It seems a clear cut case of 1 1 1 > 2. The advent of quantum chemistry has allowed us to understand this phenomena in great detail, making the reference to synergy unnecessary. Thus, the presence of synergy in natural phenomena might just reveal our ignorance about them pinpointing areas where fundamental quantitative empirical research is needed. Th...

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Visualizing the Invisible Hand of Markets: Simulating Complex Dynamic Economic Interactions

Cited by 9 publications

References 21 publications

The “Invisible Hand” of Economic Markets Can Be Visualized through the Synergy Created by Division of Labor

The “Invisible Hand” of Economic Markets Can Be Visualized through the Synergy Created by Division of Labor

Synergy Drives the Evolutionary Dynamics in Biology and Economics

Defining synergy thermodynamically using quantitative measurements of entropy and free energy

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