Characteristics of complexity in selected economic models in the light of nonlinear dynamics

Abstract

The catastrophe theory and deterministic chaos constitute the basic elements of economic complexity. Elementary catastrophes were the first remarkable form of nonlinear, topological complexity that were thoroughly studied in economics. Another type of catastrophe is the complexity catastrophe, namely an increase in the complexity of a system beyond a certain threshold which marks the beginning of a decrease in a system's adaptive capacity. As far as the ability to survive is concerned, complex adaptive systems should function within the range of optimal complexity which is neither too low or too high. Deterministic chaos and other types of complexity follow from the catastrophe theory. In general, chaos is seemingly random behavior of a deterministic system which stems from its high sensitivity to the initial condition. The theory of nonlinear dynamical systems, which unites various manifestations of complexity into one integrated system, runs contrary to the assumption that markets and economies spontaneously strive for a state of equilibrium. The opposite applies: their complexity seems to grow due to the influence of classical economic laws.