Non-Equilibrium Economics: What Changes When Nothing Settles
Equilibrium is an assumption, not an observation. What economic analysis looks like once you drop it, and what you give up in exchange.
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Research theme
Complexity Economics: Economies as Adaptive Systems
Standard economic models ask what happens once everything has settled down. Complexity economics asks a different question: what happens while an economy is still moving, and why it almost never stops moving at all.
The equilibrium assumption is not a detail of economic modelling, it is the scaffolding. Once you assume that prices clear markets, that expectations are consistent and that agents are identical enough to be replaced by a single representative household, a great deal of mathematics becomes tractable. The cost is that everything interesting about an economy - booms, panics, cascading defaults, technological substitution, the slow drift of an industry from one region to another - has to be introduced from outside as a shock.
Complexity economics starts from the opposite end. Agents are heterogeneous, they learn at different speeds, they interact through a network rather than through a single price signal, and the aggregate patterns you observe are outcomes of those interactions rather than assumptions about them. The result is a picture of an economy that generates its own turbulence.
Three shifts that follow from dropping equilibrium
From representative agents to distributions. If firms differ in size, leverage and customer base, the same interest rate change produces very different responses across the distribution. Aggregate statistics can stay flat while the tails move violently. This matters most in the study of inequality and growth, where the shape of a distribution is the subject rather than a nuisance parameter.
From exogenous shocks to endogenous dynamics. Markets can produce large price moves without any corresponding news, purely from the interaction of trading strategies and leverage constraints. That is the core insight behind work on financial instability: fragility is a property of the structure, not a run of bad luck.
From closed-form solutions to simulation. Once you allow heterogeneity and network structure, analytical solutions usually disappear. The natural tool becomes agent-based modelling, which trades elegance for the ability to represent what actually happens.
What this does not claim
Complexity economics does not replace econometrics and it does not produce better point forecasts. Its contribution is structural: it tells you where a system is likely to break, which interventions have leverage, and why some aggregates are stable while the mechanisms underneath them are not. Read the longer treatment of non-equilibrium economics for how that argument is usually made, and the notes on validation for why the field is harder to do well than it looks.
In this theme
Notes under Complexity economics
Financial Instability as a Structural Property
Why financial systems generate their own crises, how network exposure turns a local failure into a systemic one, and what regulators took from the research.
Read →Inequality and Growth: What the Distribution Does
Inequality is a property of a distribution, which makes it invisible to models built around a representative agent. What changes when you model the distribution directly.
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Other themes
- Agent-based modelling How agent-based models are built, what they are good for, where they fail, and which software people actually use.
- Social networks Network structure, how information and opinions move through it, and what the measures actually mean.
- Data and society What large behavioural datasets can and cannot tell you about a society, and what happens when policy is built on them.