Saturday, March 19, 2005

Ok, so the title of this is a bit much. But I bring it up because of a point I'd like to make about economic theory specifically and the social sciences more generally.

To begin with, on Thursday Alina Stefanescu cited an article which explains complexity theory as follows:
Now science is beginning to support the idea that randomness, not rationality, exerts surprising sway over the markets. The insights have come from researchers who are interested in complexity, where the simple behaviour of many traders in a market governed by various rules can produce highly complex "emergent" behaviour (the waxing and the waning of share prices).

The effect is driven by non-linearity, which abounds in nature. To put it simply, a linear world is an idealised one where one plus one makes two. A nonlinear world - the one we live in - is where one thousand plus one thousand oranges could lead to something quite different from two thousand oranges, such as a marmalade factory.
Although I like this description overall, it errs significantly in its initial conflation of complexity with randomness. Complexity inherently appears random -- it is defined in relation to the difficulty of explaining something rationally -- but that is not at all to say that randomness itself causes complexity.

The reason I'm splitting hairs here is that where the article's mention of traders is concerned, the complex behavior in question is generated not by randomness but by rational agents and rational actions whose aggregate product appears randomly-generated. Indeed, advanced capitalism is, I think, far more appropriately described within the following hierarchy of behavioral states (the appearance of these states are in parentheses):

1) Ultrarational, complexly-coordinated behavior (random)

2) Rational, coordinated behavior (non-random)

3) Irrational, non-coordinated behavior (random)

Without this hierarchy, there's little to stop people from proceeding from the accurate statement "complexity and randomness are similar," to the altogether specious argument, "if complex social behavior is random, then there is no need to analyze it rationally." Such reasoning is dangerous because historically it has been used to undermine the social sciences as a whole and economics in particular. After all, why bother attempting to explain the economic behavior of the past, or predict that of the future, if economic behavior itself is randomly generated?

As I hope has been implied, the answer is that the non-rational quality which complexity and randomness share are not of the same type. The complexity of advanced capitalist behavior is non-rational only because it occurs posterior to rational behavior and because as a subject of analytic inquiry it lies beyond (hence the ultra-) merely rational, or linear, economic models. By contrast, truly random behavior -- such as the proverbial monkeys playing darts -- also has a non-rational quality, but only because such behavior occurs prior to the point at which rational analysis can begin.

So, for any readers currently on Wall St., please continue doing your work. Yes, a monkey may outperform you on any given day. But that is only because you are behaving within a highly complex social group whereas the monkey is merely behaving irrationally. It's a small consolation, I know, but at least it's also to say that we've yet to reach a point where we may as well turn over the keys to the monkeys themselves.


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