Economics Working Papers

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If mainstream economics and its view of economic agents is designed for a world in which reflexivity and feedback processes in the economy are ‘tamed’ and predictable, how are we to understand economic agents in a world in which reflexivity is ‘untamed’ and economies regularly exhibit unexpected fluctuations and significant nonlinearities? In a nonlinear world, economies evolve and undergo critical phase transitions from one form of organization to another. It seems, then, that we should also expect economic agents to evolve and undergo critical phase transitions from being one type of agent to another just as we observe that economies evolve and undergo phase transitions from being one type of economy to another. Minsky’s analysis of how economies evolve in financial crises and how firms as agents evolve as their financial status changes seems a clear example of this. But then we would need a new conception of what economic agents are. This chapter offers such a conception in the idea of reflexive economic agents, both to redevelop an evolutionary, complexity account of what agents must be and also to forestall complexity researchers from falling back upon the standard utility conception of individuals.

The chapter builds its reflexive agents conception around Herbert Simon’s complexity thinking about quasi-independence. It describes reflexive economic agents in what it call position-adjustment terms, and focusing on the ‘reflexive moment’ when agents find they need to revise and adjust their positions in regard to what they are doing. To explain how we can understand adjustment, the chapter employs the thinking behind recent ‘simultaneous localization and mapping’ (SLAM) research in robotics engineering to explain how agents understood in position-adjustment terms can be attributed a form of mobility understood as a capacity for self-direction reliant on a kind of locational self-awareness. The chapter then frames the reflexive individual conception that results in terms of Simon’s quasi-independence, evaluates this conception in identity terms, and then returns to the issue of why complex economic systems made up of utility maximizing agents cannot function as evolutionary systems. The chapter closes with a discussion of complex systems seen to evolve through phase transitions.

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