Special Issue: Aspects of Game Theory and Institutional Economics

Wolfram Elsner,Henning Schwardt,Claudius Gräbner,Torsten Heinrich

doi:10.3390/g5030188

Abstract

Classical economists from Adam Smith to Thomas Malthus and to Karl Marx have considered the importance of direct interdependence and direct interactions for the economy. This was even more the case for original institutionalist thinkers such as Thorstein Veblen, John Commons, and Clarence Ayres. In their writings, direct interdependence, interactions (or transactions) among agents, with all beneficial and with all problematic consequences, took center stage in economic analysis. Why, for instance, do people adhere to a particular new fashion or trend? Because others do, after eminent people, wealthy people, the “leisure class” (T. Veblen), have made it a symbol for status. The new fashion, however, ceases to serve as such a symbol once too many people follow it. The constant effort put into following trends and adopting fashion turns out to be a social dilemma, driven by Veblenian instincts, such as invidious distinction in predatory societies, conspicuous consumption and emulation. [...]

Highlights

Classical economists from Adam Smith to Thomas Malthus and to Karl Marx have considered the importance of direct interdependence and direct interactions for the economy
The general issues of herd behavior and myopic individualistic decision making, both under opacity and highly bounded rationality in complex systems, and both possibly carrying the problem of negative unintended consequences for the economy as a whole, for society and the natural commons, have taken center stage again in the global financial crisis of 2007, which still lingers around as the “Great Recession”
Both classical political economy and original institutional economics lacked the formal methods to describe intricate interdependencies and decision structures in exact and mathematical terms—even if they wanted to

Summary

Towards a Complexity Economics

Classical economists from Adam Smith to Thomas Malthus and to Karl Marx have considered the importance of direct interdependence and direct interactions for the economy This was even more the case for original institutionalist thinkers such as Thorstein Veblen, John Commons, and Clarence Ayres. The “representative agent” of the economic mainstream’s theoretical core model, whose decisions may simplistically be summed up into the aggregates of the related macroeconomics, has most overtly failed to enable economists to even realize inherent tendencies towards crises in real-world complex systems, based on intricate common and collective decision structures Both classical political economy and original institutional economics lacked the formal methods to describe intricate interdependencies and decision structures in exact and mathematical terms—even if they wanted to (while some of them have been rather critical with respect to any formalism). Such complexity economics has apparently become a new vanishing point of the economics discipline, at least in research (albeit not in textbooks and academic mass education)

The Contributions to this Special Issue

An Outlook