Complexity economics is the application of complexity science to the problems of economics. It studies computer simulations to gain insight into economic dynamics, and avoids the assumption that the economy is a system in equilibrium....
More generally, complexity economics models are often used to study how non-intuitive results at the macro-level of a system can emerge from simple interactions at the micro level. This avoids assumptions of the representative agent method, which attributes outcomes in collective systems as the simple sum of the rational actions of the individuals....
The Economic Complexity Index (ECI) introduced by Hausmann and Hidalgo is highly predictive of future GDP per capita growth. Hausmann, Hidalgo et al. show that the ability of the ECI to predict future GDP per capita growth is between 5 times and 20 times larger than the World Bank's measure of governance, the World Economic Forum's (WEF) Global Competitiveness Index (GCI) and standard measures of human capital, such as years of schooling and cognitive ability....
Several features of complex systems that deserve greater attention in economics:
1. Dispersed interaction—The economy has interaction between many dispersed, heterogeneous, agents. The action of any given agent depends upon the anticipated actions of other agents and on the aggregate state of the economy.
2. No global controller—Controls are provided by mechanisms of competition and coordination between agents. Economic actions are mediated by legal institutions, assigned roles, and shifting associations. No global entity controls interactions. Traditionally, a fictitious auctioneer has appeared in some mathematical analyses of general equilibrium models, although nobody claimed any descriptive accuracy for such models. Traditionally, many mainstream models have imposed constraints, such as requiring that budgets be balanced, and such constraints are avoided in complexity economics.
3. Cross-cutting hierarchical organization—The economy has many levels of organization and interaction. Units at any given level behaviors, actions, strategies, products typically serve as "building blocks" for constructing units at the next higher level. The overall organization is more than hierarchical, with many sorts of tangling interactions (associations, channels of communication) across levels.
4. Ongoing adaptation—Behaviors, actions, strategies, and products are revised frequently as the individual agents accumulate experience.
5. Novelty niches—Such niches are associated with new markets, new technologies, new behaviors, and new institutions. The very act of filling a niche may provide new niches. The result is ongoing novelty.
6. Out-of-equilibrium dynamics—Because new niches, new potentials, new possibilities, are continually created, the economy functions without attaining any optimum or global equilibrium. Improvements occur regularly.