2016 Lectures on Complex Adaptive Systems


Lecture 1: Agent Based Computational Economics (ACE) A Paradigm Shift in Economics? – An overview of some ACE Modelling Applications


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Lecture 2: Limits of Formalistic Deduction and Introduction to Markets As Complex Adaptive Systems (CAS)


The main aim of this lecture is to give the foundations based on mathematical logic that are little known to economists for why incompleteness and non-computability is the norm when highly intelligent agents interact. This is a new framework for uncertainty and for why perfect rationality cannot exist. The sine qua non  of a complex adaptive system is to produce novelty or surprises and the Nash equilibrium of a game in which players strategically innovate will be shown to challenge received norms in game theory where given fixed action sets innovation is not feasible.

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Readings for Lecture 2

Lecture 3: Contrarian agents, heterogeneity and the absence of a Homogenous Rational Expectations: Rationale behind the Santa Fe Institute Artificial Stock Market Model


The significance of contrarian agents or structures which are germane to incompleteness in formal systems was first highlighted to pose problems for perfect economic rationality by Brian Arthur. In stock market environments, the fact that most money is made when one is in the minority or following a contrarian strategy renders a homogenous rational expectations to be a logical impossibility. Two Demos of ACE stock market modelling will be given.  One entails herding and guru effects and the other is a real time rebuild of the Electronic Order Book of the London Stock Exchange.

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Readings for Lecture 3

Lecture 4: How to build large scale data driven ACE macro-policy models: Systemic Risk, Financial Contagion and Financial Networks


This lecture will unpack the sort of modelling tools such as the use of financial networks to understand and analyse financial contagion and quantify systemic risk. The lecture will be based on the working paper from Markose, Sheri & Giansante, Simone & Shaghaghi, Ali Rais (2012). “Too Interconnected To Fail: Financial Contagion and Systemic Risk in Network Model of CDS and Other Credit Enhancement Obligations of US Banks”

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For any further information, please contact scher@essex.ac.uk