I watched the video about Brian Arthur and his views on the complexity of economic theory.
If you ask me, the most interesting idea in this lecture is that the speaker argues that there is a fundamental change in economics with respect to complexity theory. The speaker argues that economists have hitherto conceived of the economy as a system of individual actors such as consumers, firms, governments, banks, and investors. The key question is how these actors respond to the pattern they have created and how they will respond in the future. Brian Arthur further argues that neoclassical economics takes a shortcut and does not ask how market actors respond to market prices that are in some way created by their behavior.
In the following lines, I will discuss how these agents respond to market prices that are in some way generated by their behavior. (Better understood through examples.)
For example, if consumers observe a higher price for a particular product, they may reduce their demand for that product or look for substitute products. This may lead firms to lower their prices or shift production to other products. Similarly, if firms observe higher prices for certain inputs or raw materials, they may reduce production or look for cheaper substitutes. This can affect the prices of other goods and services on the market.
In short, market participants are likely to adjust their behavior in response to market prices as they try to optimize their own outcomes based on the information available to them.
I would like to note that I have already dealt with this topic in a previous essay, and therefore I would like to link today's topic to George Soros. George Soros's theory of reflexivity is closely related to the idea that market prices can be influenced by the behavior of market participants. Soros's reflexivity theory suggests that the relationship between the beliefs of market participants and the market itself is not one-way but rather a two-way feedback loop. In other words, Soros believes that market actors not only react to market prices but that their actions can also influence those prices, which in turn can influence their beliefs and actions.
And what is the message of this text? The lesson from this text is that economics is a complex system that cannot be fully understood by looking at the behavior of individual actors in isolation. Instead, economists must consider how market participants interact with each other and respond to market prices that are in some way generated by their behavior. This can lead to a feedback loop that can influence market prices and, ultimately, the behavior of market participants. The ideas of Brian Arthur and George Soros both suggest that a more holistic approach to economics is needed, one that takes into account the complexity of the system and the dynamic feedback between market participants and market prices.