Journal on Policy & Complex Systems Volume 4, Number 1, Spring 2018 | Page 166

Keynes , Hayek , and the Roots of Complexity Theory in Economics

perspectives on knowledge diffusion , emergence , systems theory , cognition , evolution , and

agent behavior not explicitly posed in his earlier , more popular Road to Serfdom . Emergence and complexity became an important focus of his later thought . ⁸ The mature Hayek envisioned a society of free individuals with processes of self-organization and complex social emergence . Although he did not use its language , his thinking ( Hayek , 1952 , 1967 ) places him close to the core concerns of contemporary research in complexity science in the following ways ⁹ :

( 1 ) Hayek ’ s vision of economic and political liberty was closely connected to his belief that social order emerges through processes of self-organization out of the interactions of dispersed , heterogeneous agents ; that “ if left free , men will often achieve more than individual human reason could design or foresee ” ( Hayek , 1948 , p . 11 ). He lamented

the inadequacy of conventional social science research methods for addressing problems of economic policy and moral philosophy , based as they were on models of linear change . He emphasized that constant interactions and adaptive reactions among agents are what generate changes in the larger system .

( 2 ) He sketched out an idea , elaborated later by Herbert Simon ’ s

8 Hayek ’ s interest in emergence and complexity is

documented in Caldwell ( 2004 ), p . 221 , pp . 270 – 272 , and p . 309 . J . Barkley Rosser ( 2015 ) discusses complexity in the writings of Austrian economists .

9 “ The ‘ emergence ’ of ‘ new ’ patterns as a result of the increase in the number of elements between which simple relations exist ,” wrote Hayek , “ means that this larger structure as a whole will possess certain general or abstract features which will recur independently of the particular values of the individual

data , so long as the general structure ( as described , e . g ., by an algebraic equation ) is preserved ” ( Hayek , 1967 , p . 26 ).

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“ bounded agent rationality .” For Simon , the limitation arises in decision making because when making a decision , people don ’ t maximize on only one dimension : They consider outcomes on different dimensions that must be traded against each other ( Simon , 1969 , p . 54 ). Hayek recognized that knowledge is distributed among interacting agents , but not equally throughout the system . This “ bounded ” knowledge was a constant in his thinking : human cognition “ cannot be guided ... by full knowledge and evaluation of all the consequences ” ( Hayek , 1948 , p . 19 ). Recent findings in evolutionary social psychology emphasize that local culture , community , acquired beliefs , and institutions are the filters through which people frame essential issues . People do not consider all information when making decisions because they search for new information selectively and are vulnerable to biases , dismissing information that contradicts their personal or collective goals .

( 3 ) In his later years , Hayek went against the grain of the economics profession and its embrace of equilibrium-based methodologies . Instead , he increasingly referred to social agents co-evolving and adapting continually in a decentralized space , and with distributed knowledge , producing an economy without equilibrium and comprising many interacting parts that