Excerpt

For readers new to complexity economics, a brief history of how the field emerged may provide useful context for the chapters that follow in this volume. This is not intended to be a complete historical review (for a more in-depth account, see Beinhocker 2006) but instead its purpose is to give readers an overview of key strands of work that provide the foundations for modern complexity economics, as well as some key entry points into the historical literature (up to the early 2010s). We have also chosen to focus on the social science foundations and only very briefly mention the immense contributions in ideas and methods that complexity economists have incorporated from the physical sciences. As such, we have inevitably omitted numerous important contributors and works, but the chapters that follow cite a much broader base of scholarship, as well as more recent research.
Complexity economics, a label introduced by W. Brian Arthur in Science in 1999, began to emerge as a distinct set of perspectives and methodologies in the mid-1980s, pioneered by a community of scholars associated with the Santa Fe Institute (SFI). As noted in the introduction to this volume, “Complexity economics draws from the science of complex systems to understand the economy as an adaptive system where macrolevel patterns emerge from the interaction of many diverse agents, rather than being imposed from above or derived from representative agents (see Mealy et al. 2026, ch. 1 in this volume; and Arthur 2021 for a more extended definition). While SFI catalyzed the development of the field in the 1980s, the ideas underpinning complexity economics had deep historical roots in both the social and physical sciences.

Bibliography

Acemoglu, D., V. M. Carvalho, A. Ozdaglar, and A. Tahbaz-Salehi. 2012. “The Network Origins of Aggregate Fluctuations.” Econometrica 80 (5): 1977–2016. https://doi.org/10.3982/ECTA9623.

Anderson, P. W., K. J. Arrow, and D. Pines, eds. 1988. The Economy as an Evolving Complex System. Reading, MA: Addison-Wesley.

Arthur, W. B. 1994. “Inductive Reasoning and Bounded Rationality.” American Economic Review 84 (2): 406–411. https://www.jstor.org/stable/2117868.

—. 1999. “Complexity and the Economy.” Science 284 (5411): 107–109. https://doi.org/10.1126/science.284.5411.107.

Arthur, W. B. 2009. The Nature of Technology: What It Is and How It Evolves. New York, NY: Free Press.

—. 2021. “Foundations of Complexity Economics.” Nature Reviews Physics 3: 136–145. https://doi.org/10.1038/s42254-020-00273-3.

—. 2026. “Combinatorial Evolution.” In The Economy as an Evolving Complex System IV, edited by R. M. del Rio-Chanona, M. Pangallo, J. Bednar, E. D. Beinhocker, J. Kaszowska-Mojsa, F. Lafond, P. Mealy, A. Pichler, and J. D. Farmer. Santa Fe, NM: SFI Press.

Arthur, W. B., J. H. Holland, B. LeBaron, R. Palmer, and P. Tayler. 1997. “Asset Pricing Under Endogenous Expectations in an Artificial Stock Market.” In The Economy as an Evolving Complex System II. Reading, MA: Addison-Wesley.

Axelrod, R. 1984. The Evolution of Cooperation. New York, NY: Basic Books.

Axtell, R. L. 2001. “Zipf Distribution of U.S. Firm Sizes.” Science 293 (5536): 1818–1820. https://doi.org/10.1126/science.1062081.

—. 2006. Firm Sizes: Facts, Formulae, Fables and Fantasies. Technical report 44. Brookings Institution, Center on Social and Economic Dynamics. https://doi.org/10.2139/ssrn.1024813.

—. 2016. “Hayek Enriched by Complexity Enriched by Hayek.” In Revisiting Hayek’s Political Economy, edited by P. J. Boettke and V. H. Storr, vol. 21. Advances in Austrian Economics. Leeds, UK: Emerald Group Publishing Limited. https://doi.org/10.1108/S1529-213420160000021003.

Axtell, R. L., and J. D. Farmer. 2025. “Agent-Based Modeling in Economics and Finance: Past, Present, and Future.” Journal of Economic Literature 63 (1): 197–287. https://doi.org/10.1257/jel.20221319.

Axtell, R. L., J. D. Farmer, J. Geanakoplos, P. Howitt, E. Carrella, B. Conlee, J. Goldstein, et al. 2014. “An Agent-Based Model of the Housing Market Bubble in Metropolitan Washington, DC.” SSRN Electronic Journal. https://doi.org/10.2139/ssrn.4710928.

Ayres, R. U. 1994. Information, Entropy, and Progress: A New Evolutionary Paradigm. Woodbury, NY: American Institute of Physics Press.

Bak, P., C. Tang, and K. Wiesenfeld. 1988. “Self-Organized Criticality.” Physical Review A 38 (1): 364–374. https://doi.org/10.1103/PhysRevA.38.364.

Baptista, R., J. D. Farmer, M. Hinterschweiger, K. Low, D. Tang, and A. Uluc. 2016. Macroprudential Policy in an Agent-Based Model of the UK Housing Market. Bank of England, Working Paper no. 619. https://doi.org/10.2139/ssrn.2850414.

Battiston, S., M. Puliga, R. Kaushik, P. Tasca, and G. Caldarelli. 2012. “DebtRank: Too Central to Fail? Financial Networks, the FED and Systemic Risk.” Scientific Reports 2 (1): 541. https://doi.org/10.1038/srep00541.

Beinhocker, E. D. 1999. “Robust Adaptive Strategies.” Sloan Management Review 40 (3): 95–106.

—. 2006. The Origin of Wealth: Evolution, Complexity, and the Radical Remaking of Economics. Boston, MA: Harvard Business School Press.

Bergmann, B. R. 1971. “The Effect on White Incomes of Discrimination in Employment.” Journal of Political Economy 79 (2): 294–313. https://doi.org/10.1086/259744.

—. 1990. “Micro-to-Macro Simulation: A Primer with a Labor Market Example.” Journal of Economic Perspectives 4 (1): 99–116. https://doi.org/10.1257/jep.4.1.99.

Bettencourt, L. M. A., J. Lobo, D. Helbing, C. Küh­nert, and G. B. West. 2007. “Growth, Innovation, Scaling, and the Pace of Life in Cities.” Proceedings of the National Academy of Sciences 104 (17): 7301–7306. https://doi.org/10.1073/pnas.0610172104.

Borgerhoff Mulder, M., S. Bowles, T. Hertz, A. Bell, J. Beise, G. Clark, I. Fazzio, et al. 2009. “Intergenerational Wealth Transmission and the Dynamics of Inequality in Small-Scale Societies.” Science 326 (5953): 682–688. https://doi.org/10.1126/science.1178336.

Boss, M., H. Elsinger, M. Summer, and S. Thurner. 2004. “Network Topology of the Interbank Market.” Quantitative Finance 4 (6): 677–684. https://doi.org/10.1080/14697680400020325.

Bowles, S. 1998. “Endogenous Preferences: The Cultural Consequences of Markets and Other Economic Institutions.” Journal of Economic Literature 36 (1): 75–111. https://www.jstor.org/stable/2564952.

—. 2004. Microeconomics: Behavior, Institutions, and Evolution. Princeton, NJ: Princeton University Press.

Bowles, S. 2006. “Group Competition, Reproductive Leveling, and the Evolution of Human Altruism.” Science 314 (5805): 1569–1572. https://doi.org/10.1126/science.1134829.

Bowles, S., and M. Fochesato. 2024. “The Origins of Enduring Economic Inequality.” Journal of Economic Literature 62 (4): 1475–1537. https://doi.org/10.1257/jel.20241718.

Bowles, S., and H. Gintis. 2011. A Cooperative Species: Human Cooperation and Its Evolution. Princeton, NJ: Princeton University Press.

Bowles, S., A. Kirman, and R. Sethi. 2017. “Retrospectives: Friedrich Hayek and the Market Algorithm.” Journal of Economic Perspectives 31 (3): 215–230. https://doi.org/10.1257/jep.31.3.215.

Brock, W. A., and C. H. Hommes. 1998. “Heterogeneous Beliefs and Routes to Chaos in a Simple Asset Pricing Model.” Journal of Economic Dynamics and Control 22 (8–9): 1235–1274. https://doi.org/10.1016/S0165-1889(98)00011-6.

Caccioli, F. 2026. “Understanding Financial Contagion: A Complexity-Modeling Perspective.” In The Economy as an Evolving Complex System IV, edited by R. M. del Rio-Chanona, M. Pangallo, J. Bednar, E. D. Beinhocker, J. Kaszowska-Mojsa, F. Lafond, P. Mealy, A. Pichler, and J. D. Farmer. Santa Fe, NM: SFI Press.

Caccioli, F., M. Shrestha, C. Moore, and J. D. Farmer. 2014. “Stability Analysis of Financial Contagion Due to Overlapping Portfolios.” Journal of Banking & Finance 46: 233–245. https://doi.org/10.1016/j.jbankfin.2014.05.021.

Challet, D., and Y.-C. Zhang. 1997. “Emergence of Cooperation and Organization in an Evolutionary Game.” Physica A 246 (3–4): 407–418. https://doi.org/10.1016/S0378-4371(97)00419-6.

Chiarella, C. 1992. “The Dynamics of Speculative Behavior.” Annals of Operations Research 37:101–123. https://doi.org/10.1007/BF02071051.

Choi, J.-K., and S. Bowles. 2007. “The Coevolution of Parochial Altruism and War.” Science 318 (5850): 636–640. https://doi.org/10.1126/science.1144237.

Cincotti, S., M. Raberto, and A. Teglio. 2010. “Credit Money and Macroeconomic Instability in the Agent-Based Model and Simulator EURACE.” Economics: The Open-Access, Open-Assessment E-Journal 4 (1): 20100026. https://doi.org/10.5018/economics-ejournal.ja.2010-26.

Cohen, M. D., J. G. March, and J. P. Olsen. 1972. “A Garbage Can Model of Organizational Choice.” Administrative Science Quarterly 17 (1): 1–25. https://doi.org/10.2307/2392088.

Cristelli, M., A. Tacchella, and L. Pietronero. 2015. “The Heterogeneous Dynamics of Economic Complexity.” PLoS ONE 10 (2): e0117174. https://doi.org/10.1371/journal.pone.0117174.

Cyert, R. M., and J. G. March. 1963. A Behavioral Theory of the Firm. Englewood Cliffs, NJ: Prentice Hall.

Daly, H. E. 1977. Steady-State Economics. San Francisco, CA: W. H. Freeman & Co.

Delli Gatti, D., S. Desiderio, E. Gaffeo, P. Cirillo, and M. Gallegati. 2011. Macroeconomics from the Bottom-Up. Berlin, Germany: Springer.

Delli Gatti, D., C. Di Guilmi, E. Gaffeo, G. Giulioni, M. Gallegati, and A. Palestrini. 2005. “A New Approach to Business Fluctuations: Heterogeneous Interacting Agents, Scaling Laws and Financial Fragility.” Journal of Economic Behavior & Organization 56 (4): 489–512. https://doi.org/10.1016/j.jebo.2003.10.012.

Dosi, G., G. Fagiolo, and A. Roventini. 2010. “Schumpeter Meeting Keynes: A Policy-Friendly Model of Endogenous Growth and Business Cycles.” Journal of Economic Dynamics and Control 34 (9): 1748–1767. https://doi.org/10.1016/j.jedc.2010.06.018.

Dosi, G., C. Freeman, R. Nelson, G. Silverberg, and L. Soete, eds. 1988. Technical Change and Economic Theory. London, UK: Pinter.

Durlauf, S. N. 1993. “Nonergodic Economic Growth.” Review of Economic Studies 60 (2): 349–366. https://doi.org/10.2307/2298061.

Epstein, J. M., and R. Axtell. 1996. Growing Artificial Societies. Cambridge, MA: MIT Press.

Farmer, J. D. 2002. “Market Force, Ecology and Evolution.” Industrial and Corporate Change 11 (5): 895–953. https://doi.org/10.1093/icc/11.5.895.

Farmer, J. D., and S. Joshi. 2002. “Price Dynamics of Common Trading Strategies.” Journal of Economic Behavior & Organization 49 (2): 149–171. https://doi.org/10.1016/S0167-2681(02)00065-3.

Ferguson, A. 1767 [1979]. An Essay on the History of Civil Society. Edinburgh, UK: Edinburgh University Press.

Gabaix, X. 1999. “Zipf’s Law for Cities: An Explanation.” Quarterly Journal of Economics 114 (3): 739–767. https://doi.org/10.1162/003355399556133.

—. 2009. “Power Laws in Economics and Finance.” Annual Review of Economics 1 (1): 255–294. https://doi.org/10.1146/annurev.economics.050708.142940.

—. 2011. “The Granular Origins of Aggregate Fluctuations.” Econometrica 79 (3): 733–772. https://doi.org/10.3982/ECTA8769.

Geanakoplos, J., R. Axtell, J. D. Farmer, P. Howitt, B. Conlee, J. Goldstein, M. Hendrey, N. M. Palmer, and C.-Y. Yang. 2012. “Getting at Systemic Risk via an Agent-Based Model of the Housing Market.” American Economic Review 102 (3): 53–58. https://doi.org/10.1257/aer.102.3.53.

Georgescu-Roegen, N. 1971. The Entropy Law and the Economic Process. Cambridge, MA: Harvard University Press.

Giardina, I., and J.-P. Bouchaud. 2003. “Bubbles, Crashes and Intermittency in Agent-Based Market Models.” The European Physical Journal B 31: 421–437. https://doi.org/10.1140/epjb/e2003-00050-6.

Gigerenzer, G. 1991. “How to Make Cognitive Illusions Disappear.” European Review of Social Psychology 2 (1): 83–115. https://doi.org/10.1080/14792779143000033.

Gigerenzer, G., P. M. Todd, and the ABC Research Group. 1999. Simple Heuristics That Make Us Smart. Oxford, UK: Oxford University Press.

Gintis, H. 2016. Individuality and Entanglement: The Moral and Material Bases of Social Life. Princeton, NJ: Princeton University Press.

Hausmann, R., C. A. Hidalgo, S. Bustos, M. Coscia, S. Chung, J. Jimenez, A. Simoes, and M. A. Yildirim. 2011. The Atlas of Economic Complexity: Mapping Paths to Prosperity. Hollis, NH: Puritan Press.

Hausmann, R., C. A. Hidalgo, S. Bustos, M. Coscia, A. Simoes, and M. A. Yildirim. 2014. The Atlas of Economic Complexity: Mapping Paths to Prosperity. Cambridge, MA: MIT Press.

Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic Review 35 (4): 519–530. https://www.jstor.org/stable/1809376.

Henrich, J., R. Boyd, S. Bowles, C. Camerer, E. Fehr, and H. Gintis. 2004. Foundations of Human Sociality: Economic Experiments and Ethnographic Evidence from Fifteen Small-Scale Societies. Oxford, UK: Oxford University Press.

Henrich, J., R. Boyd, S. Bowles, C. Camerer, E. Fehr, H. Gintis, and R. McElreath. 2001. “In Search of Homo Economicus: Behavioral Experiments and Ethnographic Evidence from Fifteen Small-Scale Societies.” American Economic Review 91 (2): 73–78. https://doi.org/10.1257/aer.91.2.73.

Hidalgo, C. A., B. Klinger, A.-L. Barabási, and R. Hausmann. 2007. “The Product Space Conditions the Development of Nations.” Science 317 (5837): 482–487. https://doi.org/10.1126/science.1144581.

Hodgson, G. M. 1993. Economics and Evolution: Bringing Life Back into Economics. Ann Arbor, MI: University of Michigan Press.

Holland, J. H., and J. H. Miller. 1991. “Artificial Adaptive Agents in Economic Theory.” American Economic Review 81 (2): 365–371. https://econpapers.repec.org/RePEc:aea:aecrev:v:81:y:1991:i:2:p:365-71.

Islahi, A. A., and S. M. Ghazanfar. 2011. Economic Thought of al-Ghazālī. MPRA Paper 53465, University Library of Munich. https://mpra.ub.uni-muenchen.de/53465/.

Jackson, M. O. 2008. Social and Economic Networks. Princeton, NJ: Princeton University Press.

Jackson, M. O., and A. Wolinsky. 1996. “A Strategic Model of Social and Economic Networks.” Journal of Economic Theory 71 (1): 44–74. https://doi.org/10.1006/jeth.1996.0108.

Kahneman, D., and A. Tversky. 1979. “Prospect Theory: An Analysis of Decision Under Risk.” Econometrica 47 (2): 263–291. https://doi.org/10.2307/1914185.

Kauffman, S. A. 1969. “Metabolic Stability and Epigenesis in Randomly Constructed Genetic Nets.” Journal of Theoretical Biology 22 (3): 437–467. https://doi.org/10.1016/0022-5193(69)90015-0.

Kennedy, G. 2009. “Adam Smith and the Invisible Hand: From Metaphor to Myth.” Economic Journal Watch 6 (2): 239–263.

Kirman, A. 1992. “Whom or What Does the Representative Individual Represent?” Journal of Economic Perspectives 6 (2): 117–136. https://doi.org/10.1257/jep.6.2.117.

Kirman, A. 2010. Complex Economics: Individual and Collective Rationality. London, UK: Routledge.

Kirman, A. P., and N. J. Vriend. 2001. “Evolving Market Structure: An ACE Model of Price Dispersion and Loyalty.” Journal of Economic Dynamics and Control 25 (3–4): 459–502. https://doi.org/10.1016/S0165-1889(00)00033-6.

Leijonhufvud, A. 1981. Information and Coordination. New York, NY: Oxford University Press.

Leontief, W. 1936. “Quantitative Input and Output Relations in the Economic Systems of the United State.” Review of Economics and Statistics 18 (3): 105–125. https://doi.org/10.2307/1927837.

Lindgren, K. 1991. “Evolutionary Phenomena in Simple Dynamics.” In Artificial Life II, edited by C. G. Langton, C. Taylor, J. D. Farmer, and S. Rasmussen, 295–312. Reading, MA: Addison-Wesley.

Lux, T., and M. Marchesi. 1999. “Scaling and Criticality in a Stochastic Multi-Agent Model of a Financial Market.” Nature 397:498–500. https://doi.org/10.1038/17290.

Mealy, P., J. Bednar, E. D. Beinhocker, R. M. del Rio-Chanona, J. D. Farmer, J. Kaszowska-Mojsa, F. Lafond, M. Pangallo, and A. Pichler. 2026. “Introduction.” In The Economy as an Evolving Complex System IV, edited by R. M. del Rio-Chanona, M. Pangallo, J. Bednar, E. D. Beinhocker, J. Kaszowska-Mojsa, F. Lafond, P. Mealy, A. Pichler, and J. D. Farmer. Santa Fe, NM: SFI Press.

Nelson, R. R., and S. G. Winter. 1982. An Evolutionary Theory of Economic Change. Cambridge, MA: Harvard University Press.

Nicolaisen, J., V. Petrov, and L. Tesfatsion. 2001. “Market Power and Efficiency in a Computational Electricity Market with Discriminatory Double-Auction Pricing.” IEEE Transactions on Evolutionary Computation 5 (5): 504–523. https://doi.org/10.1109/4235.956714.

Page, S. E. 2007. The Difference. Princeton, NJ: Princeton University Press.

Page, S. E. 2010. Diversity and Complexity. Princeton, NJ: Princeton University Press.

Pangallo, M., T. Heinrich, and J. D. Farmer. 2019. “Best Reply Structure and Equilibrium Convergence in Generic Games.” Science Advances 5 (2): eaat1328. https://doi.org/10.1126/sciadv.aat1328.

Rothschild, E. 1994. “Adam Smith and the Invisible Hand.” American Economic Review 84 (2): 319–322. https://www.jstor.org/stable/2117851.

Sato, Y., E. Akiyama, and J. D. Farmer. 2002. “Chaos in Learning a Simple Two-Person Game.” Proceedings of the National Academy of Sciences 99 (7): 4748–4751. https://doi.org/10.1073/pnas.032086299.

Schelling, T. C. 1971. “Dynamic Models of Segregation.” Journal of Mathematical Sociology 1 (2): 143–186. https://doi.org/10.1080/0022250X.1971.9989794.

Scholl, A., A. Calinescu, and J. D. Farmer. 2021. “How Market Ecology Explains Market Malfunction.” Proceedings of the National Academy of Sciences 118 (39). https://ideas.repec.org/a/nas/journl/v118y2021pe2015574118.html.

Schumpeter, J. A. [1911]1934. The Theory of Economic Development. Cambridge, MA: Harvard University Press.

Schweitzer, F., G. Fagiolo, D. Sornette, F. Vega-Redondo, A. Vespignani, and D. R. White. 2009. “Economic Networks: The New Challenges.” Science 325 (5939): 422–425. https://doi.org/10.1126/science.1173644.

Simon, H. A. 1955. “A Behavioral Model of Rational Choice.” Quarterly Journal of Economics 69 (1): 99–118. https://doi.org/10.2307/1884852.

Simon, H. A. 1962. “The Architecture of Complexity.” Proceedings of the American Philosophical Society 106 (6): 467–482. https://www.jstor.org/stable/985254.

Simon, H. A. 1973. “The Organization of Complex Systems.” In Hierarchy Theory, edited by H. H. Pattee, 1–27. New York: George Braziller.

Simon, H. A. 1978. “Rationality as Process and as Product of Thought.” American Economic Review 68 (2): 1–16. https://www.jstor.org/stable/1816653.

Smith, A. [1977]1776. An Inquiry into the Nature and Causes of the Wealth of Nations. Chicago, IL: University of Chicago Press.

Tacchella, A., M. Cristelli, G. Caldarelli, A. Gabrielli, and L. Pietronero. 2012. “A New Metrics for Countries’ Fitness and Products’ Complexity.” Scientific Reports 2:723. https://doi.org/10.1038/srep00723.

Tesfatsion, L. 2002. “Agent-Based Computational Economics: Growing Economies from the Bottom Up.” Artificial Life 8 (1): 55–82. https://doi.org/10.1162/106454602753694765.

Tesfatsion, L., and K. L. Judd, eds. 2006. Handbook of Computational Economics, Volume 2. Amsterdam, Netherlands: Elsevier.

Thurner, S., and S. Poledna. 2013. “DebtRank-Transparency: Controlling Systemic Risk in Financial Networks.” Scientific Reports 3 (1): 1888. https://doi.org/10.1038/srep01888.

Veblen, T. 1898. “Why Is Economics Not an Evolutionary Science?” Quarterly Journal of Economics 12 (4): 373–397. https://doi.org/10.2307/1882952.

Vega-Redondo, F. 2007. Complex Social Networks. Cambridge, UK: Cambridge University Press.

Waldrop, M. 1992. Complexity: The Emerging Science at the Edge of Order and Chaos. New York, NY: Simon & Schuster.

West, G. B. 2017. Scale: The Universal Laws of Growth, Innovation, Sustainability, and the Pace of Life in Organisms, Cities, Economies, and Companies. New York: Penguin Press.

West, G. B., J. H. Brown, and B. J. Enquist. 1997. “A General Model for the Origin of Allometric Scaling Laws in Biology.” Science 276 (5309): 122–126. https://doi.org/10.1126/science.276.5309.122.

Young, H. P. 1993. “The Evolution of Conventions.” Econometrica 61 (1): 57–84. https://doi.org/10.2307/2951778.

BACK TO The Economy as an Evolving Complex System IV