Wednesday, June 29, 2011

Where is Australia's FuturICT?

I established my DigEcon Research brand as a place to undertake policy research on the implications of the Digital Economy. One of the issues I have in my frame is that the neoclassical model of economics simply doesn't cut it.

There are a couple of reasons. The first is that it can't cope with the fact that there are no longer real restraints to the size of firms. The second is it doesn't account for "network effects" - or generally demand side economies of scale and scope.

FuturICT is a proposed European "flagship" project - looks like what we'd call a Co-operative Research Centre. Their pitch is;

The ultimate goal of the FuturICT flagship project is to understand and manage complex, global, socially interactive systems, with a focus on sustainability and resilience. Revealing the hidden laws and processes underlying societies probably constitutes the most pressing scientific grand challenge of our century and is equally important for the development of novel robust, trustworthy and adaptive information and communication technologies (ICT), based on socially inspired paradigms.

We think that integrating ICT, Complexity Science and the Social Sciences will create a paradigm shift, facilitating a symbiotic co-evolution of ICT and society. Data from our complex globe-spanning ICT system will be leveraged to develop models of techno-socio-economic systems. In turn, insights from these models will inform the development of a new generation of socially adaptive, self-organized ICT systems.

Paul Ormerod has provided a take on what that means in economics and posed four hard problems. Anyone familiar with his books Butterfly Economics and The Death of Economics will know that he comes from the school of mathematically aware heterodox economists.

A possible weakness in the Ormerod style is that the straw-man of neoclassicism he presents is one that can be rebuffed by economists who argue that it is all in the simplifying assumptions and that the neo-classical model can deal with the specific issues when it needs to.

A better place to start is a paper by Arnsperger and Varoufakis that identifies the three axioms of neo-classical economics. They are;

1. Methodological individualism. All agents are treated as individuals, and structures are the creation of agents never the other way around. verything worth knowing can be found by studying individuals.
2. Methodological instrumentalism. All behaviour is preference-driven, and preference is given, current and fully-determined. This doesn't permit a decision on emotion or any other basis. It is philosophically the equivalent of determinism versus free-will - just not determined by God.
3. Methodological equilibriation. The assumption that an economic system starts at or will reach an equilibrium.

Each of these is challenged by a model that sees economic agents as being influenced continually by other agents, their preferences being shaped by the networks they are part of and demand and supply "functions" that are always massively auto-correlated and hence more likely to have unstable than stable, and multiple rather than singular, "equilibria".

But we don't research that stuff here.

Novae Meridianae Demetae Dexter delenda est

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