Provisional Title: The Economy As a Knowledge Problem: Unforeseen Consequences, Adaptive Actors and the Dynamics of Complex Economic Systems

This paper argues that there is fundamental flaw in the way mainstream economics understands human action. This has consequences for its capacity to explain economic developments and for the policy-related ambition to predict future events. The paper presents this critique by bringing forward a price-theoretic approach of human action together with the view of the economy as a complex adaptive system. The synthesis of the two standpoints sees the economy as an evolving process that emerges from the activities of heterogeneous, purposeful and adaptive human actors who seek to gain information about profit opportunities and to avoid losses under conditions of uncertainty. While no actor or organization has perfect information, they rely on price movements and incoming local information on the behaviour of others in order to discern opportunities and anticipate risks. Myriads of adaptive movements generate variable patterns of behaviour and reorganize the system whose properties are always in flux and difficult to predict. Unpredictability becomes more pronounced when economic actors face events that are particularly disturbing to their entrepreneurial efforts: for instance, deep-cutting macroeconomic consolidation that is perceived as a threat to the economic vitality of a country or region. By contrast, smaller-scale interventions can be easier absorbed in the plans of economic actors and may not cause systemic upheavals.
The paper associates this framework of analysis with the discussion about the unintended and unforeseen consequences of economic policy and, in particular, macroeconomic stabilization, with reference to the Greek case, and the policies of austerity and internal devaluation.