ERRATIC BEHAVIOR IN ECONOMIC-MODELS

An intellectually attractive but potentially frustrating feature of economic theory is that even seemingly simple models can lead to mathematically complex behavior. Paradoxes abound, dynamical motion which intuitively should be 'simple' can be highly erratic, and small changes in assumptions can cause radically different conclusions. On first glance, this complexity is surprising. After all, much of economics is based on concepts, such as aggregation and optimization, that appear to introduce stability and predictability to the resulting model. Yet, this need not be so. An argument is given to explain why such behavior can occur. © 1991.