The Complexity Era in Economics

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institutions, since the incentives embodied in those institutions are often central in
understanding people’s behavior.

This change is being accompanied by a change in the deductive nature of
economic reasoning. The new work is based much more on empirical inductive
reasoning, and far less on pure deductive reasoning. As this is happening, the math being
used in economic analysis is becoming less the Bourbakian math of “theorem-proof,” and
more applied mathematics, which is designed to come up with answers about policy
issues, and not just talk about general issues (Weintraub, 2002). Set theory and calculus,
which come to definite results, are being replaced by game theory, which seldom comes
to a definite conclusion independent of the precise structure of the game. For example the
work on auctions combines insights from game theory with experimental results, which
are then used in practice. Similarly, information economics is used in designing efficient
algorithms for search engines.

6. The Lack of Impact of Cutting Edge Work on Modern Macroeconomics
Interestingly, these cutting edge changes in micro theory toward inductive analysis and a
complexity approach have not occurred in macroeconomics. In fact, the evolution of
macro economic thinking in the United States has gone the other way. By that, we mean
that there has been a movement away from a rough and ready macro theory that
characterized the macroeconomics of the 1960s toward a theoretically analytic macro
theory based on abstract, representative agent models that rely heavily on the
assumptions of equilibrium. This macro work goes under the name new Classical, Real

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