conceptions of complexity and implications for economics stuart a. umpleby the george washington...
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CONCEPTIONS OF COMPLEXITY AND IMPLICATIONS FOR
ECONOMICS
Stuart A. UmplebyThe George Washington University
Washington, DC
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Three conceptions of complexity
• Complexity -- Systems with large numbers of variables and many relationships among them
• Self-organizing systems -- Systems composed of numerous autonomous (usually preprogrammed) actors or agents or algorithms which interact, often producing unexpected results (emergence)
• Reflexive systems -- Systems involving knowing participants acting in systems in which they have an interest in the outcome
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Three conditions define reflexivity
• There is circular reasoning – observe, act, observe, act…
• The observer is included in what is observed • Descriptions on two levels are required – observation and participation
• These conditions seem to involve fallacious reasoning – circular reasoning, the ad hominem fallacy -- and self-reference
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The situation in economics
• For many years economists have been using an equilibrium model of economic systems
• Economists assume that if some incident affects an economy, it will quickly return to a stable equilibrium
• This model is taken from thermodynamics in physics
• Equilibrium theory is based on some very unrealistic assumptions about human behavior
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Reflexivity theory as an alternative
• George Soros has proposed reflexivity theory as an alternative to equilibrium theory
• Reflexivity theory assumes that social systems are different from physical systems because they are composed of thinking participants
• Each person observes what is happening, thinks about alternatives, chooses a course of action and then participates to implement it
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Why has reflexivity theory not been accepted?
• When I explain reflexivity theory to economists, most say they have not heard of it
• Some say that reflexivity theory would encounter logical difficulties
• By “logical difficulties” they usually mean Russell’s Paradox and self-reference
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Are logical difficulties an obstacle to a more realistic theory of economics?
• This is a question I have been pondering for several months
• The answer is yes and no, but both yes and no are complex
• I shall describe the situation as I see it now
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Yes, logical difficulties are an obstacle
• Clearly self-reference is a difficult problem• Paradox is a form of inconsistency and leads to undecideability
• The informal fallacies, whether known explicitly or only implicitly, also lead social scientists to want to avoid a reflexive point of view
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No, logical difficulties are not the obstacle
• The problem with believing that self-reference is the primary obstacle to adopting reflexivity theory is that most social scientists have not heard of self-reference
• Most social scientists have not heard of the Russell set – the set of all sets that do not contain themselves
• Also, some philosophers and mathematicians familiar with Russell’s paradox interpret it narrowly and say it is not related to social systems
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Yes, nevertheless• One possible reply is that many people believe
that there are logical problems, even if they do not know a formal representation
• The problems have been known for a very long time, at least since Epimenides’s paradox (circa 600 B.C.) of the Cretan liar
• We have laws governing self-incrimination, conflicts of interest, corruption
• Hence, we have devised ways of dealing with self-reference through legal arrangements and judgments about human behavior
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The goals of social scientists
• Currently social scientists, particularly economists, are trying to create a social science similar to physics
• Paradox, inconsistency, and undecideability do not fit their image of what science should look like
• Economists want a quantitative, mathematical theory, similar to physics, even if the foundational assumptions are unrealistic
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The siren song of physics
• It is not so much the logical problems of self-reference that stand in the way of reflexivity theory
• Rather the problem is that the image of physics constitutes a greatly desired “fantastic object”
• Like ancient mariners, economists do not worry about being ship-wrecked on rocks, instead they listen to the music of the lorelei
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Underlying assumptions
• Because of the strong desire to create economics in the image of physics, economists are willing to adopt many highly unrealistic assumptions
• Some of these assumptions are being corrected with behavioral economics
• The ergodic assumption may be addressed next• There are also two philosophical assumptions
that have not yet been addressed by economists
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A practical solution to the problem
• As noted, we already have devised solutions to the problem of self-reference in social systems through laws against conflicts of interest, corruption and self-incrimination
• Another corrective action is business ethics
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Experts vs. decision-makers
• An expert who is advising a decision-maker can think of himself as giving objective advice
• However, a decision-maker sees himself as a participant in the social system and must take responsibility for his decisions
• Of course the expert is also a participant in that he seeks to maintain his reputation as an expert and seeks to maintain his position as an adviser
• But experts usually ignore this kind of participation in an effort to claim objectivity
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Self-reference is an issue for decision-makers
• When an expert sees himself as uninvolved and objective, he is saying he is outside the system
• But a decision-maker is deliberately trying to influence a social system
• Since the decision-maker is inside the system, there is ambiguity and undecideability
• Is the decision-maker acting to benefit himself, his firm, society or some combination?
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A formal solution to the problem
• Rather than A or not A• Describe a process• A leads to B leads to C leads to D leads to A• Describing a process implicitly adds time as an additional dimension
• System dynamics and recursive function theory are possible representations
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Conclusion
• Methods rather than theories may be the best way to describe management. The observer is then included
• Economics needs to expand its conception of science to include the observer and the effects of economic theories on the operation of economic systems
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Contact information
Stuart A. UmplebyDepartment of ManagementThe George Washington UniversityWashington, DC
www.gwu.edu/[email protected]
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Presented at Capital Science 2012A conference of the Washington Academy of Sciences
Washington, DC 2012 March 31 to April 1, 2012