The Complexity of Market Dynamics: Computational Intelligence Assisted Investigations

Abstract

The tangled topic of market dynamics is relatively new problem in economic science. In clear form we meet dynamic models and/or theories even in modern era of economics that is in past hundred years approximately since 1925. In the middle of past century several economists like von Neumann, Kaldor, Samuelson, Goodwin, Smithies, Domar, Metzler, Haavelmo, Klein, Hicks, Lange, Koopmans and others have developed dynamic models concerning the stability and fluctuations around any equilibrium point or path which cover the four important fields of economic theory, namely, business cycles, income determination, economic growth and price theory. On the other hand there are few economists which imagined about economic dynamics before 20th century, at least in hidden form like A. Cournot in his mathematical theory of duopoly. However there exists one economist who was reasoning about dynamics in economic evolution very early. His name is Ibn Khaldun. He focused attention on that important characteristic of economic phenomena, even in the period of so called Golden Arabic medieval, that is, several centuries earlier than econo-mists in modern era.
Because in a market there are a lot of multilevel discrete time action-reactions, it is very difficult to build model and/or theory upon such realms. Even if there are only two levels of iterative reactions that is mutual reaction between supply and demand or between two producers on the supply side of market (duopoly) the model may need very sophisticated mathematics. These are the reasons why mathematically formalized models are becoming too peculiar for conventionally educated economists to create suitable imaginations. In such situation computational intelligence (CI) devices and tools are coming to help for creating clearer imaginations about such complex realms. Actually, computational economies as a manmade object similar to concept of Kripke´s “possible world” have several advantages and benefices in endeavour to create imaginations on economic reality relate to bodies created in mathematical economies.
The typical distinguishing feature in creation economic imagination in the approach assisted by ICT is the direct observation of evolution running in PC or in poorer case the static snapshots from the PC display. In such of paper printed cases the verbal abstract text is substituted by lot of coloured pictures. This needs the readers to learn how to “read” such on paper printed snapshots from PC or in better case of running simulation one.
The author in this essay is bringing approaches to complex dynamics realms of market using relatively simple mathematical models for demonstration economic dynamic complexities mainly by assistance of program iDMC and Excel too. These are two: 1. Duopoly model a lá Cournot, 2. Duopoly model with two mutually different products.