<story><title>Cartels Are an Emergent Phenomenon, Say Complexity Theorists</title><url>http://www.technologyreview.com/blog/arxiv/27512/</url></story><parent_chain></parent_chain><comment><author>wisty</author><text>A similar thing has already been shown by Steve Keen. First, he shows that if firms optimize by attempting to set the &lt;i&gt;total&lt;/i&gt; derivative of profits to zero, they behave like monopolies. Second, he uses a simple model in which firms randomly raise or lower prices, then revert if they lost money, and shows they converge to behaving like monopolies.&lt;p&gt;He also points out that many fundamental economic principles are flawed, and have been proven to be flawed for years, but economists lack rigor, and would rather live in their &quot;supply meets demand, actors are rational, and the market is in equilibrium&quot; fantasy-land.&lt;p&gt;Oh, and in about 2006, he warned that there&apos;d be a recession caused by a debt-deflation, just like in 1929. He warned that the government would continually underestimate its impact. He also thinks that the best way to &quot;reset&quot; the system is with a &quot;modern jubilee&quot; - the government engage in massive quantitative easing (which they won&apos;t, because they don&apos;t realise what&apos;s causing the crisis, and how bad it is), and should hand out the free money to tax-payers rather than giving it to banks, as the banks have lost their appetite for risk and won&apos;t create new money even if you feed them.&lt;p&gt;But mainstream economists only study basic calculus, linear algebra, and statistics, not ODEs, and don&apos;t believe anything they don&apos;t understand. A 50 year old professor (or central banker) isn&apos;t going to go back to school and sit in a class with sophomore engineers, just to be able to understand what &quot;complexity theorists&quot; and &quot;econophysists&quot; are talking about, so they just pretend that it doesn&apos;t exist. There&apos;s no conspiracy, they just don&apos;t read or teach anything more mathematically advanced than IS-LM (which is stone age). Their journals don&apos;t accept non-mainstream papers for &quot;methodological reasons&quot; (they don&apos;t understand basic differential equations), or because it &quot;doesn&apos;t sit well with the current theory&quot; (it proves them wrong) and since there&apos;s tens of thousands of them they tend to dominate the field.</text></comment>
<story><title>Cartels Are an Emergent Phenomenon, Say Complexity Theorists</title><url>http://www.technologyreview.com/blog/arxiv/27512/</url></story><parent_chain></parent_chain><comment><author>pash</author><text>Though a fun paper, Technology Review&apos;s write-up of it is worthless. At most, all you should take from reading this paper is that &quot;cartels&quot; potentially can emerge without coordination, not that they do or that they are likely to. Or that this phenomenon has anything at all to do with the dynamics of prices at your neighborhood gas-station.&lt;p&gt;As anyone who has studied complex systems understands, the evolution of interactions among even very simple agents is enormously sensitive to initial conditions. (That&apos;s often taken as the very definition of chaos in deterministic systems.) So it is almost always wrong to draw strong conclusions about a complex part of the real world based on your computational model of it: vary one parameter a little bit and you end up with something that looks completely different.&lt;p&gt;This is why agent-based models, like the one employed in this study, are widely despised in economics and the other social sciences despite offering a way to do experiments that would otherwise be impossible in these fields. We simply don&apos;t know enough about people and how they interact to build meaningful models, and we probably never will.&lt;p&gt;For example, an economist might point out that the model presented in this paper doesn&apos;t account for the spacial distribution of gas stations and consumers, for buyers&apos; and sellers&apos; expectations of future prices, or for any number of conceivable and inconceivable factors—almost all of which would affect aggregate outcomes in the model, I would bet, just as the authors found that the speed of reacting to price-changes did. (That was the only parameter the authors varied, by the way.) And of course we could model the problem in many fundamentally different ways to start with.&lt;p&gt;In other words, this is much different (and harder) than building an N-body model of the dynamics of Alpha Centauri, where&apos;s there&apos;s basically one force (gravity) that operates in the same way on a bunch of things that can all be described adequately by a single parameter (mass).</text></comment>