EPISTEMOLOGICAL IMPLICATIONS OF ECONOMIC COMPLEXITY

J. Barkley Rosser, Jr.

Professor of Economics
James Madison University
Harrisonburg, V !!"#$ U%
rosser&b'&mu.edu
January, !##(
)
EPISTEMOLOGICAL IMPLICATIONS OF ECONOMIC COMPLEXITY
I. INTRODUCTION
*ver t+e last several decades t+e vie, t+at economic reality is some+o,
fundamentally com-le. +as increasingly taken +old among economists, not only t+ose
focused on abstract t+eory but even -olicymakers as ,ell /0reens-an, !##(1.
2onse3uently suc+ economists +ave been forced to ,restle ,it+ t+e -roblem not only of
+o, to forecast, ,+ic+ +as al,ays been difficult, but even +o, to understand t+e
a--arently most sim-le economic -+enomena in -rinci-le as ,ell. More to t+e -oint,
even +o, to t+ink about +o, to understand suc+ -+enomena +as become a serious
c+allenge. 4n s+ort, economists increasingly must gra--le ,it+ fundamental -roblems of
e-istemology, +o, to kno, ,+at t+ey kno, in a com-le. economic reality.
5+is -a-er ,ill consider t+ree foundational as-ects of t+is -roblem. 5+e first
involves to ,+at e.tent t+e source of t+e -roblem is endogenous to nonlinear dynamics.
5+e second involves to ,+at e.tent it is logical and com-utational. 5+e t+ird ,ill
consider ,+et+er or not t+e e-istemological -roblem is really an ontological -roblem.
5+e -roblem of nonlinear dynamics and e-istemology is most clearly seen in
relation to c+aotic dynamics, -articularly t+e -roblem of sensitive de-endence on initial
conditions, also kno,n -o-ularly as t+e 6butterfly effect.7 4f minute c+anges in initial
conditions, eit+er of -arameter values controlling a system or of initial starting values,
can lead to very large c+anges in ultimate outcomes of a system, t+en it may essentially
re3uire an infinite e.actness of kno,ledge to com-letely understand t+e system.
8ike,ise suc+ -roblems as fractality of basin boundaries in systems ,it+ multi-le basins
!
of dynamic attraction can lead to similar -roblems ,+en t+ere is even t+e slig+test
amount of stoc+astic noise in t+e dynamical system /Rosser, !###a1.
5+e -roblem of logic or com-utation arises in com-le. systems of multi-le
interacting +eterogeneous agents t+inking about eac+ ot+ers9 t+inking. lt+oug+ game
t+eoretic solutions suc+ as :as+ e3uilibria may -resent t+emselves, t+ese may involve a
certain element of ignorance, a refusal to fully kno, t+e system. Efforts to fully kno,
t+e system may -rove to be im-ossible due to -roblems of infinite regress or self
referencing t+at lead to non;com-utability /Binmore, )<"$= lbin ,it+ >oley, )<<"=
?o--l and Rosser, !##!1.
5+e final issue is one t+at +as been raised in t+e conte.t of economic com-le.ity
by Paul @avidson /)<<A1, ,+o argues t+at com-le.ity is not ontologically a source of
uncertainty in economic analysis but merely an e-istemological one in t+at if one +ad
infinite com-uting -o,er and kno,ledge t+e -roblem ,ould be resolved. Rosser /)<<"1
+as contested +is arguments, but only in a -artial ,ay, arguing t+at com-le.ity im-lies an
6essentially ontological7 foundation for fundamental uncertainty in economic analysis.
Ho,ever, +ere 4 ,is+ to -ursue t+is argument furt+er, to say t+at indeed t+e fundamental
source of t+e difficult e-istemology of com-le.ity is ultimately ontological. 5+is -ro&ect
can also be seen as asking for t+e basis of Herbert %imon9s /)<B$1 assertion of t+e
boundedness of rationality for economic agents.
5+e ne.t section of t+e -a-er ,ill note t+e com-eting definitions of com-le.ity.
5+e follo,ing t+ree ,ill -ursue t+e -oints noted above in order. 4n addition t+ere ,ill be
a concluding section.
C
II. WHAT IS ECONOMIC COMPLEXITY?
4n The End of Science /)<<A, -. C#C1 Jo+n Horgan re-orts on (B definitions of
com-le.ity t+at +ave been gat+ered by t+e -+ysicist %et+ 8loyd. %ome of t+e more
,idely used conce-tualiDations include informational entropy /%+annon, )<("1,
algorithmic complexity /2+aitin, )<"$1, stochastic complexity /Rissanen, )<"<1, and
hierarchical complexity /%imon, )<A!1. 2uriously, at least t+ree ot+er definitions +ave
been more fre3uently used in economics t+at do not a--ear on 8loyd9s list, namely
sim-le com-licatedness in t+e sense of many different sectors ,it+ many different
interconnections /Pryor, )<<B= %todder, )<<B1, dynamic com-le.ity /@ay, )<<(1, and
com-utational com-le.ity /8e,is, )<"B= Velu-illai, !###1. Ee s+all not consider t+e
-roblems associated ,it+ mere com-licatedness, as t+e e-istemological issues involved
,it+ t+is form of com-le.ity are essentially trivial from a -+iloso-+ical -ers-ective.
>ollo,ing Ric+ard @ay /)<<(1, dynamic com-le.ity can be defined as arising
from dynamical systems t+at endogenously fail to converge to eit+er a -oint, a limit
cycle, or a smoot+ e.-losion or im-losion. :onlinearity is a necessary but not sufficient
condition for suc+ com-le.ity. Rosser /)<<<1 identifies t+is definition ,it+ a big tent
vie, of com-le.ity t+at can be subdivided into four sub;categoriesF cybernetics,
catastrophe theory, chaos theory, and small tent complexity. 5+e latter does not -ossess
a definite definition, +o,ever rt+ur, @urlauf, and 8ane /)<<$1 argue t+at suc+
com-le.ity e.+ibits si. c+aracteristicsF )1 dis-ersed interaction among locally interacting
+eterogeneous agents in some s-ace, !1 no global controller t+at can e.-loit o--ortunities
arising from t+ese dis-ersed interactions, C1 cross;cutting +ierarc+ical organiDation ,it+
many tangled interactions, (1 continual learning and ada-tation by agents, B1 -er-etual
(
novelty in t+e system as mutations lead it to evolve ne, ecological nic+es, and A1 out;of;
e3uilibrium dynamics ,it+ eit+er no or many e3uilibria and little likeli+ood of a global
o-timum state emerging. 2ertainly suc+ systems offer considerable sco-e for -roblems
of +o, to kno, ,+at is going on in t+em.
2om-utational com-le.ity essentially amounts to a system being non;
com-utable. Ultimately t+is is de-ends on a logical foundation, t+at of non;recursiveness
due to incom-leteness in t+e 0Gdel sense. 4n actual com-uter -roblems t+is -roblem
manifests itself most clearly in t+e form of t+e +alting -roblem /Blum, 2ucker, %+ub, and
%male, )<<"1, t+at t+e +alting time of a -rogram is infinite. Ultimately t+is form of
com-le.ity +as dee- links ,it+ several of t+e ot+ers listed above, suc+ as 2+aitin9s
algorit+mic com-le.ity. 5+ese latter t,o a--roac+es are t+e ones ,e s+all consider in
more detail in t+e ne.t t,o sections.
III. EPISTEMOLOGY OF DYNAMIC COMPLEXITY
5o t+e e.tent t+at ,e live in a dynamically com-le. system, t+e -roblem of
e-istemology in suc+ systems becomes t+e e-istemological -roblem more generally.
Ho,ever, to address t+is issue ,e need to -in it do,n a bit more -recisely. 5+us, ,e
s+all consider t+e more s-ecific -roblem of being able to kno, t+e conse3uences of an
action t+at ,e take in suc+ a system. 8et 0/x
t
1 be t+e dynamical system in an n;
dimensional s-ace. 8et an agent -ossess an action set A. 8et a given action by t+e agent
at a -articular time be given by a
it
. >or t+e moment let us not s-ecify any actions by any
ot+er agents, eac+ of ,+om also -ossesses +is or +er o,n action set. Ee can identify a
relation ,+ereby x
t
H f/a
it
1. 4n effect t+e e-istemological -roblem for t+e agent in
B
3uestion becomes, 6can t+e agent kno, t+e reduced system 0/f/a
it
1 ,+en t+is system
-ossesses com-le. dynamics due to nonlinearity7I
>irst of all, it may be -ossible for t+e agent to be able to understand t+e system
and to kno, t+at +e or s+e understands it, at least to some e.tent. *ne reason ,+y t+is
can +a--en is t+at many com-le. nonlinear dynamical systems do not al,ays be+ave in
erratic or discontinuous ,ays. >or many fundamentally c+aotic systems t+ere is a -attern
of transiency /8orenD, )<<!1. 4n effect, t+e system can move in and out of be+aving
c+aotically, ,it+ long -eriods -assing during ,+ic+ t+e system ,ill effectively be+ave in
a non;com-le. manner, eit+er tracking a sim-le e3uilibrium or follo,ing an easily
-redictable limit cycle. E+ile t+e system remains in t+is -attern, actions by t+e agent
may +ave easily -redicted outcomes, and t+e agent may even be able to become confident
regarding +is or +er ability to mani-ulate system in a systematic manner. Ho,ever, t+is
is essentially avoiding t+e 3uestion.
8et us consider t+ree forms of com-le.ityF c+aotic dynamics, fractal basin
boundaries, and discontinuous -+ase transitions in +eterogeneous agent situations. >or
t+e first of t+ese t+ere is a clear -roblem for t+e agent, t+e e.istence of sensitive
de-endence on initial conditions. 4f an agent moves from action a
it
to action a
&t
, ,+ere la
it
J a
&t
l K L K ), t+en no matter +o, small L is, t+ere e.ists an m suc+ t+at l0/f/a
itMt9
1 J
0/f/a
&tMt9
1l N m for some t9 for eac+ L. s L a--roac+es Dero, mOL ,ill a--roac+ infinity. 4t
,ill be very +ard for t+e agent to be confident in -redicting t+e outcome of c+anging +is
or +er action. 5+is is t+e -roblem of t+e butterfly effect or sensitive de-endence on initial
conditions. More -articularly, if t+e agent +as an im-erfectly -recise a,areness of +is or
+er actions, ,it+ t+e Done of fuDDiness e.ceeding L, clearly t+e agent ,ill be facing a
A
-otentially large range of uncertainty regarding t+e outcome of +is or +er actions. 4t is
,ort+ remembering t+e outcome of Ed,ard 8orenD9s original e.-erience in t+is matter
,+en +e 6discovered c+aos7 /8orenD, )<AC1. E+en +e restarted +is simulation of a t+ree;
e3uation system of fluid dynamics -art,ay t+roug+, t+e roundoff error t+at triggered a
subse3uent dramatic divergence ,as too small for +is com-uter to 6-erceive7 /at t+e four
decimal -lace1.
Ho,ever, t+ere are t,o offsetting elements for t+e situation of c+aotic dynamics.
lt+oug+ an e.act kno,ledge is effectively im-ossible, re3uiring essentially infinitely
-recise kno,ledge /and kno,ledge of t+at kno,ledge1, a broader a--ro.imate
kno,ledge over time may be -ossible. 5+us, c+aotic systems are generally bounded and
often ergodic. E+ile in t+e s+ort run relative tra&ectories for t,o slig+tly different actions
may s+ar-ly diverge, t+e tra&ectories ,ill at some later time return to,ard eac+ ot+er,
becoming arbitrarily close to eac+ ot+er before once again diverging. :ot only may t+e
bounds of t+e system be kno,able, but t+e long run average of t+e system may be
kno,able. 5+ere are still limits as one can never be sure t+at one is not dealing ,it+ a
long transient of t+e system, ,it+ it -ossibly moving into a substantially different mode
of be+avior later. But t+e -ossibility of a substantial degree of kno,ledge, ,it+ even
some degree of confidence regarding t+at kno,ledge is not out of t+e 3uestion for
c+aotically dynamic systems.
:o, let us consider t+e -roblem of fractal basin boundaries, first identified for
economic models by Hans;Ealter 8orenD /)<<!1 in t+e same -a-er in ,+ic+ +e discussed
t+e -roblem of c+aotic transience. E+ereas in a c+aotic system t+ere may be only one
basin of attraction, albeit ,it+ t+e attractor being fractal and strange and t+us generating
$
erratic fluctuations, t+e fractal basin boundary case involves multi-le basins of attraction,
,+ose boundaries ,it+ eac+ ot+er take fractal s+a-es. 5+e attractor for eac+ basin may
,ell be as sim-le as being a single -oint. Ho,ever, t+e boundaries bet,een t+e basins
may lie arbitrarily close to eac+ ot+er in certain Dones.
4n suc+ a case, alt+oug+ it may be difficult to be certain, for t+e -urely
deterministic case once one is able to determine ,+ic+ basin of attraction one is in, a
substantial degree of -redictability may ensue, alt+oug+ again t+ere may be t+e -roblem
of transient dynamics, ,it+ t+e system taking a long and circuitous route before it begins
to get any,+ere close to t+e attractor, even if t+e attractor is merely a -oint in t+e end.
5+e -roblem arises if t+e system is not strictly deterministic, if 0 includes a stoc+astic
element, +o,ever small. 4n t+is case one may be easily -us+ed across a basin boundary,
es-ecially if one is in a Done ,+ere t+e boundaries lie very close to one anot+er. 5+us
t+ere may be a sudden and very difficult to -redict discontinuous c+ange in t+e dynamic
-at+ as t+e system begins to move to,ard a very different attractor in a different basin.
5+e effect is very similar to t+at of t+e sensitive de-endence on initial conditions in
e-istemological terms, even if t+e t,o cases mat+ematically 3uite distinct.
:evert+eless, in t+is case as ,ell t+ere may be somet+ing similar to t+e kind of
dis-ensation over t+e longer run ,e noted for t+e case of c+aotic dynamics. Even if e.act
-rediction in t+e c+aotic case is all but im-ossible, it may be -ossible to discern broader
-atterns, bounds and averages. 8ike,ise in t+e case of fractal basin boundaries ,it+ a
stoc+astic element, over time one s+ould observe a &um-ing from one basin to anot+er.
%ome,+at like t+e -attern of long run evolutionary game dynamics studied by Binmore
and %amuelson /)<<<1, one can imagine an observer kee-ing track of +o, long t+e
"
system remains in eac+ basin and eventually develo-ing a -robability -rofile of t+e
-attern, ,it+ t+e -ercent of time t+e system s-ends in eac+ basin gradually a--roac+ing
some fi.ed asym-totic value. Ho,ever, t+is is contingent on t+e nature of t+e stoc+astic
-rocess itself, as ,ell as t+e degree of com-le.ity of t+e fractal -attern of t+e basin
boundaries. non;ergodic stoc+astic -rocess may render it very difficult, even
im-ossible to observe convergence on a stable set of -robabilities for being in t+e
res-ective basins, even if t+ose are t+emselves fe, in number ,it+ sim-le attractors.
>inally ,e consider t+e case of -+ase transitions in systems of +eterogeneous
locally interacting agents, t+e ,orld of t+e so;called 6small tent com-le.ity.7 Brock and
Hommes /)<<$1 +ave develo-ed a useful model for understanding suc+ -+ase transitions,
based on statistical mec+anics. 5+is is a stoc+astic system and is driven fundamentally
by t,o key -arameters, a strengt+ of interactions or relations+i-s bet,een neig+boring
agents and a degree of ,illingness to s,itc+ be+avioral -atterns by t+e agents. >or t+eir
model t+e -roduct of t+ese t,o -arameters is crucial, ,it+ a bifurcation occurring for
t+eir -roduct. 4f t+e -roduct is belo, a certain critical value, t+en t+ere ,ill be a single
e3uilibrium state. Ho,ever, once t+is -roduct e.ceeds a -articular critical value t,o
distinct e3uilibria ,ill emerge. Effectively t+e agents ,ill &um- back and fort+ bet,een
t+ese e3uilibria in a +erding -attern. >or financial market models /Brock and Hommes,
)<<"1 t+is can resemble oscillations bet,een o-timistic bull markets and -essimistic bear
markets, ,+ereas belo, t+e critical value t+e market ,ill +ave muc+ less volatility as it
tracks somet+ing t+at may be a rational e.-ectations e3uilibrium.
>or t+is kind of a setu- t+ere are essentially t,o serious -roblems. *ne is
determining t+e value of t+e critical t+res+old. 5+e ot+er is understanding +o, t+e agents
<
&um- from one e3uilibrium to t+e ot+er in t+e multi-le e3uilibrium Done. 2ertainly t+e
second -roblem resembles some,+at t+e discussion from t+e -revious case, if not
involving as dramatic a set of -ossible discontinuous s+ifts.
*f course once a t+res+old of discontinuity is -assed it may be recogniDable ,+en
it is a--roac+ed again. But -rior to doing so it may be essentially im-ossible to
determine its location. 5+e -roblem of determining a discontinuity t+res+old is a muc+
broader one t+at ve.es -olicymakers in many situations, suc+ as attem-ting to avoid
catastro-+ic t+res+olds t+at can bring about t+e colla-se of a s-ecies -o-ulation or of an
entire ecosystem. *ne does not ,ant to cross t+e t+res+old, but ,it+out doing so, one
does not kno, ,+ere it is. Ho,ever, for less dangerous situations involving
irreversibilities, it may be -ossible to determine t+e location of t+e t+res+old as one
moves back and fort+ across it.
*n t+e ot+er +and in suc+ systems it is 3uite likely t+at t+e location of suc+
t+res+olds may not remain fi.ed. *ften suc+ systems e.+ibit an evolutionary self;
organiDing -attern in ,+ic+ t+e -arameters of t+e system t+emselves become sub&ect to
evolutionary c+ange as t+e system moves from Done to Done. %uc+ non;ergodicity
becomes consistent not only ,it+ ?eynesian style uncertainty, but may also come to
resemble t+e com-le.ity identified by Hayek /)<(", )<A$1 in +is discussions of self;
organiDation ,it+in com-le. systems. *f course for market economies Hayek evinced an
o-timism regarding t+e outcomes of suc+ -rocesses. Even if market -artici-ants may not
be able to -redict outcomes of suc+ -rocesses, t+e -attern of self;organiDation ,ill
ultimately be largely beneficial if left on its o,n. lt+oug+ ?eynesians and Hayekian
ustrians are often seen as in dee- disagreement, some observers +ave noted t+e
)#
similarities of vie,-oint regarding t+ese under-innings of uncertainty /%+ackle, )<$!=
8oasby, )<$A= Rosser, !##)1. >urt+ermore, t+is a--roac+ leads to t+e idea of t+e
o-enness of systems t+at becomes consistent ,it+ t+e critical realist a--roac+ to
economic e-istemology /8a,son, )<<$1.
IV. EPISTEMOLOGY OF COMPUTATIONAL COMPLEXITY
Ee s+all ultimately argue t+at t+ere are links bet,een dynamic com-le.ity and
com-utational com-le.ity, but for initially ,e must consider t+e -roblem of
com-utational com-le.ity on its o,n. Velu-illai /!###1 -rovides definitions and general
discussion and ?o--l and Rosser /!##!1 -rovide a more -recise formulation of t+e
-roblem, dra,ing on arguments of ?leene /)<A$1, Binmore /)<"$1, 8i-man /)<<)1, and
2anning /)<<!1. Velu-illai defines com-utational com-le.ity straig+tfor,ardly as
6intractability7 or insolvability. Halting -roblems suc+ as studied by Blume, 2ucker,
%+ub, and %male /)<<"1 -rovide e.cellent e.am-les of +o, suc+ com-le.ity can arise.
4n -articular, ?o--l and Rosser ree.amined t+e famous 6Holmes;Moriarty7
-roblem of game t+eory, in ,+ic+ t,o -layers ,+o be+ave as 5uring mac+ines
contem-late a game bet,een eac+ ot+er involving an infinite regress of t+inking about
,+at t+e ot+er one is t+inking about. %uc+ a situation +as a :as+ e3uilibrium solution,
but t+e -roblem is ,+et+er or not 6+y-er;rational7 5uring mac+ines can arrive at
kno,ing t+at solution or not. 5+e conclusion is t+at t+ey cannot, ultimately due to t+e
+alting -roblem. 5+is arises from t+e self;referencing involved t+at involves -roblems
fundamentally similar to t+ose underlying t+e 0Gdel 4ncom-leteness 5+eorem /?leene,
))
)<A$, -. !(A1. More -recisely, t+e best re-ly functions of t+ese agents are not
com-utable.
Binmore9s /)<"$, --. !#<;!)!1 res-onse to t+is sort of failure of undecidability in
self;referencing systems ,as to invoke a 6so-+isticated7 form of Bayesian u-dating.
5+is +e +o-ed could bring about convergence in a com-utational sense on t+e :as+
e3uilibrium solution for suc+ -layers, ,it+out encountering t+e logical -arado.es arising
from +y-er;rationality. 4n s+ort, e-istemologically, t+e agents mig+t be able to function
if t+ey are a bit more ignorant. More broadly ?o--l and Rosser agree, t+e only ,ay t+at
agents can indeed o-erate in suc+ an environment is not to be so kno,ledgeable, to
acce-t limits on kno,ledge and o-erate accordingly, -er+a-s on t+e basis of intuition or
6?eynesian animal s-irits7 /?eynes, )<CA1. 5+e earlier discussion in effect says t+at no
matter +o, +y-er;rational t+e agents are, t+ey cannot +ave com-lete kno,ledge,
essentially for t+e same reason t+at 0Gdel s+o,ed t+at no logical system can be com-lete
,it+in itself.
Ho,ever, even for Binmore9s -ro-osed solution t+ere are also limits. 5+us,
@iaconis and >reedman /)<"A1 +ave s+o,n t+at Bayes9 5+eorem fails to +old in an
infinite dimensional s-ace. 5+ere may be a failure to converge on t+e correct solution
t+roug+ Bayesian u-dating, notably ,+en t+e basis is discontinuous. 5+e kind of t+ing
t+at can +a--en instead is a convergence on a cycle in ,+ic+ agents are &um-ing back and
fort+ from one -robability to anot+er, neit+er of ,+ic+ is correct. 4n t+e sim-le e.am-le
of coin tossing, t+ey mig+t be &um-ing back and fort+ bet,een assuming -riors of )OC and
!OC ,it+out ever being able to converge on t+e correct -robability of )O!. :yarko /)<<)1
)!
+as studied suc+ kinds of cyclical dynamics in learning situations in generaliDed
economic models.
?o--l and Rosser com-are t+is issue to t+at of t+e ?eynes9s -roblem /)<CA, c+a-.
)!1 of t+e beauty contest in ,+ic+ t+e -artici-ants are su--osed to ,in if t+ey most
accurately guess t+e guesses of t+e ot+er -artici-ants. gain, t+ere is -otentially an
infinite regress -roblem ,it+ t+e -artici-ants trying to guess +o, t+e ot+er -artici-ants
are going to be guessing about t+eir guessing and so fort+. 5+ere is not necessarily a
convergence to a solution in t+is case for t+e fully rational agent. solution only comes
by in effect c+oosing to be some,+at ignorant or boundedly rational and o-erating at a
-articular level of analysis. Ho,ever, as t+ere is no ,ay to determine rationally t+e
degree of boundedness, ,+ic+ itself involves an infinite regress -roblem /8i-man, )<<)1,
t+is decision also ultimately involves an arbitrary act, based on animal s-irits or
,+atever, an decision ultimately made ,it+out kno,ledge.
curiously related -oint +ere is t+e ne,er literature /0ode and %under, )<<C=
Miro,ski, !##!1 on t+e be+avior of Dero intelligence traders. 0ode and %under +ave
s+o,n t+at in many artificial market setu-s Dero intelligence traders follo,ing very
sim-le rules can converge on market e3uilibria t+at may even be efficient. :ot only may
it be necessary to limit one9s kno,ledge in order to be+ave in a rational manner, but one
may be able to be rational in some sense ,+ile being com-letely ,it+out kno,ledge
,+atsoever.
>undamentally, t+e e-istemological -roblem for com-utationally com-le.
economic systems is essentially t+e same as t+at for logical systems more broadly.
4ncom-leteness im-lies bot+ an ultimate non;decidability t+at translates as a non;
)C
com-utatability. 5+is incom-leteness suggests an incom-leteness of kno,ledge, at least
of kno,ledge obtained by t+e use of logic or calculation, alt+oug+ ot+er met+ods of
obtaining kno,ledge may remain available.
V. IS THE COMPLEXITY EPISTEMOLOGICAL PROBLEM ONTOLOGICAL?
>inally ,e ,is+ to consider briefly t+e 3uestion regarding t+e ultimate source of
t+e e-istemological -roblem in com-le. economic systems. 4s it sim-ly a matter of
difficulties in discerning relations+i-s or -recise values of -arameters or gat+ering of data
or limits on t+e com-uting -o,er of t+e +uman mind, or is it more fundamentally derived
from ontological foundations. 5+e im-lication of t+e latter is t+at t+e e-istemological
-roblem cannot ultimately be overcome= it is in+erent in t+e nature of com-le. systems.
4f t+e former is t+e case, t+en t+ere is t+e -ossibility t+at some+o, t+e -roblem can be
resolved by im-rovements in t+eory construction, data gat+ering, or com-uter -o,er.
Ee note again -articularly t+e argument of Paul @avidson /)<<A1 regarding t+e
source of fundamental uncertainty of t+e ?eynesian variety in economic analysis.
E+ereas Rosser /)<<", )<<<1 argues t+at t+e e.istence of systemic com-le.ity in
economics -rovides an e.-lanation for suc+ uncertainty, @avidson dismisses t+is
argument. He argues t+at t+is is 6merely7 e-istemological, due to t+e sorts of limits on
data gat+ering or sim-le com-utational -o,er alluded to above. Ho,ever, +e argues
instead t+at suc+ uncertainty must be ontologically founded on an a.iomatic assertion
regarding t+e non;ergodicity of economic systems. Rosser +as res-onded t+at suc+ non;
ergodicity is in fact an em-irical issue rat+er t+an one of a.iomatics and t+at uncertainty
may occur in com-le. systems even ,+en t+ey are ergodic sometimes. He +as also
)(
suggested t+at t+e e-istemological -roblem of com-le.ity may be 6effectively
ontological,7 alt+oug+ t+at in effect grants @avidson9s ultimate argument to some e.tent.
Ee are no, in a -osition to furt+er evaluate t+is discussion. Most of t+is earlier
discussion ,as in terms of ,+at ,e are labeling +ere 6dynamic com-le.ity.7 s already
noted, in effect, to +ave e.act kno,ledge of a c+aotically dynamic system ,ould re3uire
an arbirtrarily +ig+ information cost, effectively a--roac+ing infinity. 5+is is t+e basis of
t+e argument regarding t+e e-istemological -roblem being 6effectively ontological.7 :o
matter +o, -recise one gets in one9s measurements, say to t+e si.t+ decimal -lace, an
error at an even smaller order of magnitude, t+e sevent+ decimal -lace, can still encounter
t+e -roblem of sensitive de-endence on initial conditions and lead one to make a ,ildly
incorrect forecast or -rediction. *ne sim-ly cannot guarantee e.act -rediction, or even
very close -rediction ,it+ any certainty, as long as one is e.-ending a finite effort to
obtain information regarding t+e system, its internal relations, its initial conditions, its
-arameter values, and so fort+. *ne may be able to learn some t+ings ,it+ certainty,
suc+ as t+e outer bounds of t+e dynamical -at+ of t+e system, but one ,ill not be able to
kno, its e.act -at+, or even be certain t+at one is going to be very near its e.act -at+ at
all, ot+er t+an being ,it+in t+ese very broad bounds.
Regarding t+e 3uestion of com-utational com-le.ity t+ere ,ould seem to be a
some,+at different -roblem. Ee +ave em-+asiDed t+at ultimately t+e -roblem is one of
logic, es-ecially of t+e 0Gdel -roblem of incom-leteness. 5+is -roblem becomes
es-ecially acute in systems t+at attem-t to understand t+emselves, t+at are self;
referencing. Ho,ever, t+is may not be as ineluctable as it may seem. 5+e issue is t+at
t+ese -roblems only a--ly to t+e logical analysis carried out by a 5uring mac+ine.
)B
+uman being, ,+o may use ot+er a--roac+es to gaining kno,ledge, including intuition,
may ,ell be able to obtain sufficient information to understand a com-utationally
com-le. system, even if a 5uring mac+ine cannot. 5+ere ,ould not seem to be an
ultimate ontological -roblem +ere.
>urt+er com-lications suggest t+emselves. serious one +as to do ,it+ t+e
systems of analysis being used t+emselves, t+eir evolution and t+eir connection ,it+ t+e
fundamental reality. 8a,son +as argued t+at t+e true reality is a dee- structure, even in
an non;dynamically or com-utationally com-le. universe. %uc+ dee- structures are not
readily amenable to em-irical or analytical discovery. 5+e modes of analysis t+emselves
may by t+eir very nature involve artificial boundaries or categories t+at do not corres-ond
to t+e underlying reality. %o it is t+at >oucault /)<$!, 4ntroduction1 argues t+at
6e-istemological acts or t+res+olds7 arise in t+e +istorical develo-ment of ideas,
discontinuities t+at may not corres-ond ,it+ t+e underlying reality. 4f one uses
dialectical modes of analysis, categories may be artificially o--osed to one anot+er, even
as dialectical -rocesses can be seen as a foundation for nonlinear dynamical systems
/Rosser, !###b1. 5+e searc+ for a common language in mat+ematics itself may also +ave
led economists astray. 2ommunication and clarity may +ave been ac+ieved as
abstraction +as -roceeded, even as understanding of actual ontology may +ave decreased
/Miro,ski, !##!= Eeintraub, !##!1.
Ultimately t+is 3uestion cannot be resolved for e-istemological reasons. Ee
cannot kno, if t+e source of t+e e-istemological -roblem for com-le. economic systems
is ultimately ontological or not because ,e cannot kno, for certain t+e ontology itself.
)A
VI. CONCLUSIONS
Ee +ave revie,ed issues related to t+e e-istemological -roblem as it relates
s-ecifically to com-le. economic systems. E+ile noting t+at t+ere are many com-eting
definitions of com-le.ity, ,e +ave identified t,o t+at +ave been most fre3uently used in
economics, dynamic com-le.ity and com-utational com-le.ity. Eac+ +as its o,n sort of
e-istemological -roblem. @ynamic com-le.ity is sub&ect to suc+ issues as t+e sensitive
de-endence on initial conditions of c+aos t+eory, or t+e uncertainty due to fractal basin
boundaries in stoc+astic nonlinear systems, or t+e -attern of -+ase transitions and self;
organiDing transformations t+at can occur in systems ,it+ interacting +eterogeneous
agents. %uc+ -roblems im-ly t+at in effect only an infinite degree of -recision of
kno,ledge ,ill allo, one to fully understand t+e system, ,+ic+ is im-ossible.
4n com-utationally com-le. systems t+e -roblem is more related to logic, t+e
-roblems of infinite regress and undecidability associated ,it+ self;referencing in
systems of 5uring mac+ines. 5+is can manifest itself as t+e +alting -roblem, somet+ing
t+at can arise even for a com-uter attem-ting to -recisely calculate even a dynamically
com-le. system as for e.am-le t+e e.act s+a-e of t+e Mandelbrot set /Blum, 2ucker,
%+ub, and %male, )<<",1. 5uring mac+ine cannot understand fully a system in ,+ic+
its o,n decisionmaking is too crucially a -art. Ho,ever, kno,ledge of suc+ systems
may be gained by ot+er means.
Regarding t+e ontological foundations of t+e e-istemological -roblem for
com-le. systems, t+is ultimately runs into t+e fundamental e-istemological -roblem of
all, +o, do ,e kno, t+at ,e understand true ontologyI 5+is leaves o-en;ended a
)$
resolution of t+e debate over ,+et+er or not t+e s-ecial -roblems ,e +ave been
discussing are ultimately ontological in nature or not.
4n t+e end, t+e serious e-istemological -roblems associated ,it+ com-le.
economic systems do im-ly t+at t+ere e.ist serious bounds on t+e rationality of economic
agents. 5+ese bounds take many forms, inability to understand t+e internal relations of a
system, inability to fully kno, crucial -arameter values, inability to identify critical
t+res+olds or bifurcation -oints, inability to understand t+e interactions of agents,
es-ecially ,+en t+ese agents are t+inking about +o, eac+ ot+er are t+inking about eac+
ot+ers9 t+inking. 4nfinite regress -roblems im-ly non;decidability and non;com-utability
for +y-er;rational 5uring mac+ine agents. 5+us, economic agents must ultimately rely on
arbitrary acts and decisions, even if t+ose sim-ly involve deciding ,+at ,ill be t+e
bounds beyond ,+ic+ t+e agent ,ill no longer attem-t to solve t+e e-istemological
-roblem.
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