Prior Commitment and Uncertainty in Complex Economic Systems: Reinstating History in the Core of Economic Analysis

Abstract

Conventional ‘neoclassical’ economics is very useful in understanding how prices are determined but less so as a general basis for understanding the economic behaviour we observe. What is not taken into account is that economic systems are dissipative structures that are complex, but incompletely connected, networks of rules. It is explained why a degree of prior commitment in decision‐making is inevitable in complex economic systems and the implications of this are examined. It is argued that economic analysis must begin with the reality that choices are made in relation to pre‐existing commitments, both with regard to economic structures built in the past and to prevailing systems of belief, when deciding what to do in a future characterised by uncertainty. It is explained how conventional economic incentives can be dealt with in such a complex historical context building upon the neoclassical perspective of Alfred Marshall over a century ago. It is argued that econometric modelling remains viable and useful in understanding behaviour in complex economic systems. It is shown how we can design and interpret time series econometric modelling from a complex systems perspective.

A societal perspective on self-employment – Sweden as an example

“…Also within the field of economics itself, the assumption of a historically, socially and culturally isolated individual who makes decisions in an abstract world is being criticised (e.g. Dopfer, Foster, and Potts 2004;Foster 2017;Foster and Metcalfe 2012;Gruszka, Scharbert, and Soder 2017). This study contributes with empirical facts showing that 'one rule' (Foster and Metcalfe 2012, 431) does not fit all.…”

“…To understand the 'reluctance' to become self-employed, the individual and the individual characteristics need to be complemented by studies that consider contextual and historical influences (Ahl 2006(Ahl , 2008Calás, Smircich, and Bourne 2009;Dopfer, Foster, and Potts 2004;Foster 2017;Holmquist and Sundin 2002).…”

“…Individuals can be inspired by entrepreneurship education, but societal organisation and expectations of family and friends set frames for what is or feels possible to choose and do (Dopfer, Foster, and Potts 2004;Foster 2017). There are cultural differences between Europe and North America (Welter and Lasch 2008), but there are also variations within the Nordic countries (Hjorth 2008), thus, international comparisons are needed (Leoni and Falk 2010) to become aware of how various societal organisations limit or facilitate self-employment.…”