Zitate von Brian Arthur

The inductive-reasoning system I have described above consists of a multitude of elements” in the form of belief-models or hypotheses that adapt to the aggregate environment they jointly create. Thus it qualifies as an adaptive complex system. After some initial learning time, the hypotheses or mental models in use are mutually co-adapted. Thus we can think of a consistent set of mental models

as a set of hypotheses that work well with each other under some criterion—that have a high degree of mutual adaptedness. Sometimes there is a unique such set, it corresponds to a standard rational expectations equilibrium, and beliefs gravitate into it. More often there is a high, possibly very high, multiplicity of such sets. In this case we might expect inductive reasoning systems in the

economy—whether in stock-market speculating, in negotiating, in poker games, in oligopoly pricing, in positioning products in the market—to cycle through or temporarily lock into psychological patterns that may be non-recurrent, path-dependent, and increasingly complicated. The possibilities are rich.

The type of rationality we assume in economics — perfect, logical, deductive rationality — is extremely useful in generating solutions to theoretical problems. But it demands much of human behavior — much more in fact than it can usually deliver. If we were to imagine the vast collection of decision problems economic agents might conceivably deal with as a sea or an ocean, with the easier

problems on top and more complicated ones at increasing depth, then deductive rationality would describe human behavior accurately only within a few feet of the surface. For example, the game Tic-Tac-Toe is simple, and we can readily find a perfectly rational, minimax solution to it. But we do not find rational solutions” at the depth of Checkers; and certainly not at the still modest depths of

Chess and Go.

In many parts of the economy, stabilizing forces appear not to operate. Instead, positive feedback magnifies the effects of small economic shifts; the economic models that describe such effects differ vastly from the conventional ones. Diminishing returns imply a single equilibrium point for the economy, but positive feedback – increasing returns – makes for many possible equilibrium points.

There is no guarantee that the particular economic outcome selected from among the many alternatives will be the best” one.

This paper has attempted to go beyond the usual static analysis of increasing-returns problems by examining the dynamical process that 'selects' an equilibrium from multiple candidates, by the interaction of economic forces and random 'historical events'. It shows how dynamically, increasing returns can cause the economy gradually to lock itself in to an outcome not necessarily superior to

alternatives, not easily altered, and not entirely predictable in advance.

Our understanding of how markets and businesses operate was passed down to us more than a century ago by a handful of European economists — Alfred Marshall in England and a few of his contemporaries on the continent. It is an understanding based squarely upon the assumption of diminishing returns: products or companies that get ahead in a market eventually run into limitations, so that a

predictable equilibrium of prices and market shares is reached. The theory was roughly valid for the bulk-processing, smokestack economy of Marshall’s day. And it still thrives in today’s economics textbooks. But steadily and continuously in this century, Western economies have undergone a transformation from bulk - material manufacturing to design and use of technology — from processing of

resources to processing of information, from application of raw energy to application of ideas. As this shift has occurred, the underlying mechanisms that determine economic behavior have shifted from ones of diminishing to ones of increasing returns.

Conventional economic theory is built is built on the assumption of diminishing returns. Economic actions engender a negative feedback that leads to a predictable equilibrium for prices and market shares. Such feedback tends to stabilize the economy because any major changes will be offset by the very reactions they generate. The high oil prices of the 1970s encouraged energy conservation and

increased oil exploration, precipitating a predictable drop in prices by the early 1980s. According to conventional theory, the equilibrium marks the best” outcome possible under the circumstances: the most efficient use and allocation of resources.