COMPLEXITY, CHAOS AND ECONOMIC MODELING

Complexity is one of the most important characteristic of the economic behavior. Complexity involves chances and risks, and also nonlinearity. Modern economy is a very complex system, and its interactions with the greater social and natural environment, requires us to move beyond the familiar economic relationships studied by mainstream economics. Complex adaptive system (CAS) is a set of many different components, interacting in nonlinear way, in the absence of any external regulatory or supervisory influence. The behavior of CAS cannot be explained by a behavior of specific components, instead, CAS shows emergent beheviors. And the modern economy has all properties of the CAS. The CASs, as large dynamic systems, have the natural tendency to evolve to critical state between order and disorder, often also called the edge of chaos, where either a large or small event, perhaps even unmeasurable change, can trigger a chain reaction of unpredictable magnitude, and change in the CAS behavior at some later point in the future. A model is a simplified picture of the real world. But, modeling of economic, political and social phenomena is very complex, because humans are more complicated and unpredictable than nature phenomena. This paper is the attempt to examine the significance of complexity and chaos for analyzing modern economy, and on that basis, the real possibilities for economic modeling and forecasting, especially in the field of economic development.