Deterministic chaos in models of human behavior: methodological issues and experimental results

Recent work has shown that several well-known models in the system dynamics literature contain previously unsuspected regimes of deterministic chaos. Two of the most extensively analyzed are Sterman's model of the economic long wave and the production-distribution model of the Beer Distribution Game. The significance of these theoretical developments hinges on whether the chaotic regimes lie in the realistic region of parameter space. There are also questions regarding the descriptive accuracy of models of human systems that exhibit chaos. Because of data limitations and the inability to conduct controlled experiments. empirical studies at the aggregate level are not likeiy to resolve these questions. An alternative approach is based on laboratory experiments in which models provide a simulated environment for the study of human decision-making behavior. Recently, laboratory experiments have been conducted to analyze decision-making behavior in the long-wave model and the Beer Distribution Game. This article describes these experiments and shows that the behavior of the subjects is explained well with a simple heuristic long used in system dynamics modeling and well grounded in behavioral decision theory. The parameters of the proposed decision rule are estimated econometrically for each subject. The parameters that characterize a significant minority of the subjects are shown to produce chaos. This direct experimental evidence that chaos can be produced by the decision-making behavior of real people has important implications for the formulation, analysis, and testing of models of human behavior.