Nurturing Breakthroughs: Lessons from Complexity Theory

TL;DR

This paper presents a theoretical framework based on complexity theory to understand how bubbles and positive feedbacks drive innovation, technological progress, and economic development, despite their inherent risks and unpredictability.

Contribution

It introduces a mathematical structure linking bubbles, positive feedback, and innovation, highlighting their role in societal progress and technological breakthroughs.

Findings

Bubbles involve self-reinforcing positive feedbacks.

Progress results from rare successes within risky bubbles.

Heavy-tailed distributions explain outliers and black swans.

Abstract

A general theory of innovation and progress in human society is outlined, based on the combat between two opposite forces (conservatism/inertia and speculative herding "bubble" behavior). We contend that human affairs are characterized by ubiquitous ``bubbles'', which involve huge risks which would not otherwise be taken using standard cost/benefit analysis. Bubbles result from self-reinforcing positive feedbacks. This leads to explore uncharted territories and niches whose rare successes lead to extraordinary discoveries and provide the base for the observed accelerating development of technology and of the economy. But the returns are very heterogeneous, very risky and may not occur. In other words, bubbles, which are characteristic definitions of human activity, allow huge risks to get huge returns over large scales. We outline some underlying mathematical structure and a few results involving positive feedbacks, emergence, heavy-tailed power laws, outliers/kings/black swans, the problem of predictability and the illusion of control, as well as some policy implications.