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Debate the Issues: Complexity and Policy making

image of Debate the Issues: Complexity and Policy making

The OECD’s New Approaches to Economic Challenges initiative invited experts from inside and outside the Organisation to discuss complexity theory as a means to better understand the interconnected nature of the trends and influences shaping our socio-economic environment. Their contributions, brought together here, examine the assumptions, strengths and shortcomings of traditional models, and propose a way to build new ones that would take into account factors such as psychology, history and culture neglected by these models. The authors concentrate on the discipline of economics as such; the financial system; and applications of complexity theory to policy making and governance. They argue that a new narrative is needed to integrate the hopes, values, attitudes and behaviours of people into economics along with the facts and data economists are more used to dealing with.

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Complexity and the financial system

Global finance is the perfect example of a complex system, consisting as it does of a highly interconnected system of subsystems featuring tipping points, emergence, asymmetries, unintended consequences, a “parts-within-parts” structure (to quote Herbert Simon), and all the other defining characteristics of complexity. It is shaped by numerous internal and external trends and shocks that it also influences and generates in turn. And as the system (in most parts) also reacts to predictions about it, it can be called a “level two” chaotic system (as described, e.g. by Yuval Harari)

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