Principles of Forecasting in Complex Economic Systems

Abstract

In this note we develop principles for forecasting economies viewed as evolving networks formed by individuals acting on the basis of their psychology and social position following Markey-Towler (2016). We review the basic formal apparatus required to understand economies as such before using results derived thereon to understand the determinants of the likelihoods that certain development paths will or will not be taken. We develop a view by which we can allow for radical uncertainty - “black swan” events - and maintain an ability to forecast. We make use of the qualitative view of the likelihood of certain development paths thus obtained to inform our quantitative estimations for the dynamics of meso-populations within the econometric framework developed by Foster et al. (1999) for modelling in the presence of evolutionary change. We obtain thus a procedure for forecasting complex economic systems.