Economics as a self-organized evolutionary system

Monday, December 14th 2009 4 pm, presentation-room B4.1.114, Lakeside Labs.

Abstract:

We propose a simple model of evolution dynamics and demonstrate it in a framework of economic dynamics. New goods and services are endogenously produced through combinations of existing goods. As soon as new goods enter the market they may compete against already existing goods, in other words new products can have destructive effects on existing goods. As a result of this competition existing goods may be driven out from the market – often causing cascades of secondary defects (Schumpeterian gales of destruction).
The model leads to generic dynamics characterized by phases of relative economic stability followed by phases of massive restructuring of markets — which could be interpreted as Schumpeterian  business cycles. Model timeseries of product diversity and productivity reproduce several stylized facts of economics timeseries on long timescales such as GDP or business failures, including non-Gaussian fat tailed distributions, volatility clustering etc. The model is phrased in an open, non-equilibrium setup which can be understood as a self organized critical system. Its diversity dynamics can be understood by the time-varying topology of the active production networks.