Individual and Collective Rationality in Complex Economic Systems

Macroeconomics has been preoccupied by the analysis of equilibrium states and their properties. It is assumed that there are mechanisms which will always drive the economy to equilibrium, from which it is perturbed only by exogenous shocks. What is needed however, are models which treat the economy as a complex evolving system which may undergo sudden and radical endogenous changes. The interaction between the individuals and firms in the economy produces aggregate phenomena which are intrinsically different from the behavior of the individuals. Collective results may be more or less ârationalâ than individual behavior. Simulating agent-based models allows us to model the evolution of the economy and the emergence of crises which are absent from standard macroeconomic models.