Toward Economics as a New Complex System

TL;DR

This paper reviews the development of economic theories and advocates for viewing economics as a complex system to better understand market behaviors and dynamics.

Contribution

It proposes a new perspective of economics as a complex system, moving beyond traditional theories to improve understanding of market mechanisms.

Findings

Highlights limitations of efficient market hypothesis

Emphasizes importance of complex systems approach

Suggests new directions for economic research

Abstract

The 2015 Nobel Prize in Economic Sciences was awarded to Eugene Fama, Lars Peter Hansen and Robert Shiller for their contributions to the empirical analysis of asset prices. Eugene Fama [1] is an advocate of the efficient market hypothesis. The efficient market hypothesis assumes that asset price is determined by using all available information and only reacts to new information not incorporated into the fundamentals. Thus, the movement of stock prices is unpredictable. Robert Shiller [2] has been studying the existence of irrational bubbles, which are defined as the long term deviations of asset price from the fundamentals. This drives us to the unsettled question of how the market actually works. In this paper, I look back at the development of economics and consider the direction in which we should move in order to truly understand the workings of an economic society.