Economic complexity

This page describes the organizational forces that limit change. It explains how to overcome them when necessary.

This page uses an example to illustrate how:

A business can gain focus from targeting key customers,
Business planning activities performed by the whole organization can build awareness, empowerment and coherence.
A program approach can ensure strategic alignment.

This page uses the example of HP's printer organization freeing itself from its organizational constraints to sell a printer targeted at the IBM pc user.
The constraints are described.
The techniques to overcome them are implied.

This web frame introduces example real world complex adaptive systems (CAS): Assumptions of randomness & equilibrium allowed the wealthy & powerful to expand the size and leverage of stock markets, by placing at risk the insurance and retirement savings of the working class. The assumptions are wrong but remain entrenched. The US nation was built from two divergent political views of: Jefferson and Hamilton. It also reflects the development of competing ancient ideas of Epicurus and Cyril. But the collapse of Bretton Woods forced Wall Street into a position of power, while the middle and working class were abandoned by the elites. Housing financed with cash from oil and derivative transactions helped hide the shift. Most US health care is still operating the way cars built in the 1940s did. Geisinger is an example of better solution. But transforming the whole network is a challenge. And public health investment has proved far more beneficial. Helping our children learn to be effective adults is part of our humanity, but we have created a robust but deeply flawed education system. Better alternatives have emerged. Reading and writing emerged allowing our good ideas to become a second genetic material. The emergence of the global economy in the 1600s and its subsequent development; It explains how the examples relate to each other, why we all have trouble effectively comprehending these systems and explains how our inexperience with CAS can lead to catastrophe. It outlines the items we see as key to the system and why. Example systems frame
Dietrich Dorner argues complex adaptive systems (CAS) are hard to understand and manage. He provides examples of how this feature of these systems can have disastrous consequences for their human managers. Dorner suggests this is due to CAS properties psychological impact on our otherwise successful mental strategic toolkit. To prepare to more effectively manage CAS, Dorner recommends use of: Effective iterative planning and Practice with complex scenario simulations; tools which he reviews. Complexity catastrophes
E. O. Wilson reviews the effect of man on the natural world to date and explains how the two systems can coexist most effectively. Adaptive ecology
Barton Gellman details the strategies used by Vice President Cheney to align the global system with his economics, defense, and energy goals. US vds alignment
Kevin Kruse argues that from 1930 onwards the corporate elite and the Republican party have developed and relentlessly executed strategies to undermine Franklin Roosevelt and the New Deal. Their successful strategy used the credibility of conservative religious leaders to: Demonstrate religious issues with the New Deal. Integrate the corporate elite and evangelicals. Use the power of corporate advertising and Hollywood to reeducate the American people to view the US as historically religious and the New Deal and liberalism as anti-religious socialism. Focus the message through evangelicals including Vereide and Graham. Centralize the strategy through President Eisenhower. Add religious elements to mainstream American symbols: money, pledge; Push for prayer in public school Push Congress to promote prayer Make elections more about religious positions. Following our summary of his arguments RSS frames them from the perspective of complex adaptive system (CAS) theory. Strategy is the art of the possible. But it also depends on persistence. Inventing Christian America
Charles Ferguson argues that the US power structure has become highly corrupt. Ferguson identifies key events which contributed to the transformation: Junk bonds, Derivative deregulation, CMOs, ABS and analyst fraud, Financial network deregulation, Financial network consolidation, Short term incentives Subsequently the George W. Bush administration used the situation to build a global bubble, which Wall Street leveraged. The bursting of the bubble: managed by the Bush Administration and Bernanke Federal Reserve; was advantageous to some. Ferguson concludes that the restructured and deregulated financial services industry is damaging to the American economy. And it is supported by powerful, incentive aligned academics. He sees the result being a rigged system. Ferguson offers his proposals for change and offers hope that a charismatic young FDR will appear. Following our summary of his arguments, RSS comments on them framed by complex adaptive system (CAS) theory. Once the constraints are removed from CAS amplifiers, it becomes advantageous to leverage the increased flows. And it is often relatively damaging not to participate. Corruption and parasitism can become entrenched. Financial WMD
Matt Taibbi describes the phenotypic alignment of the American justice system. The result he explains relentlessly grinds the poor and undocumented into resources to be constrained, consumed and ejected. Even as it supports and aligns the financial infrastructure into a potent weapon capable of targeting any company or nation to extract profits and leave the victim deflated. Taibbi uses five scenarios to provide a broad picture of the: activities, crimes, policing, prosecutions, court processes, prisons and deportation network. The scenarios are: Undocumented people's neighborhoods, Poor neighborhoods, Welfare recipients, Credit card debtors and Financial institutions. Following our summary of his arguments, RSS comments on them framed by complex adaptive system (CAS) theory. The alignment of the justice system reflects a set of long term strategies and responses to a powerful global arms race that the US leadership intends to win. Aligned justice
Jonathan Powell describes how the government of, the former UK Prime Minister, Tony Blair, actually operated. Powell was Blair's only chief of staff. Mechanics of power
H. A. Hayek compares and contrasts collectivism and libertarianism. Libertarianism
John Doerr argues that company leaders and their organizations, hugely benefit from Andy Grove's OKRs. He promotes strategies that help OKR success: Focus, Align, Track, Stretch; replaces yearly performance reviews, and provides illustrative success stories. Doerr stresses Dov Seidman's view that employees are adaptive and will respond to what they see being measured. He asserts culturally supported OKRs/CFR processes will be transformative. Following our summary of his arguments, RSS comments on them framed by complex adaptive system (CAS) theory. Doerr's architecture is tailored for the startups KPCB invests in. It is a subset of the general case of schematic plans, genetic operators and Shewhart cycles that drive all CAS. Doerr's approach limits support of learning and deemphasizes the association to planning. Startup PDCA
David Bodanis illustrates how disruptive effects can take hold. While the French revolution had many driving forces including famine and oppression the emergence of a new philosophical vision ensured that thoughtful leaders were constrained and conflicted in their responses to the crisis. Voltaire's disruptive network
An epistatic meme suppressed for a thousand years reemerges during the enlightenment. It was a poem encapsulating the ideas of Epicurus rediscovered by a humanist book hunter. Greenblatt describes the process of suppression and reemergence. He argues that the rediscovery was the foundation of the modern world. Complex adaptive system (CAS) models of the memetic mechanisms are discussed. Constraining happiness
Isaacson uses the historic development of the global cloud of web services to explore Ada Lovelace's ideas about thinking machines and poetic science. He highlights the value of computer augmented human creativity and the need for liberal arts to fulfill the process. Complex adaptive system (CAS) models of agent networks and collaboration are discussed. Arts technology & intelligence
Haikonen juxtaposes the philosophy and psychology of consciousness with engineering practice to refine the debate on the hard problem of consciousness. During the journey he describes the architecture of a robot that highlights the potential and challenges of associative neural networks. Complex adaptive system (CAS) theory is then used to illustrate the additional requirements and constraints of self-assembling evolved conscious animals. It will be seen that Haikonen's neural architecture, Smiley's Copycat architecture and molecular biology's intracellular architecture leverage the same associative properties. Associatively integrated robots
Good ideas are successful because they build upon prior developments that have been successfully implemented. Johnson demonstrates that they are phenotypic expressions of memetic plans subject to the laws of complex adaptive systems (CAS). Developing ideas
A government sanctioned monopoly supported the construction of a superorganism American Telephone and Telegraph (AT&T). Within this Bell Labs was at the center of three networks: The evolving global scientific network. The Bell telephone network. And The military industrial network deploying 'fire and missile control' systems. Bell Labs strategically leveraged each network to create an innovation engine. They monitored the opportunities to leverage the developing ideas, reorganizing to replace incumbent opposition and enable the creation and growth of new ideas. Once the monopoly was dismantled, AT&T disrupted. Complex adaptive system (CAS) models of the innovation mechanisms are discussed. Strategic innovation
Roger Cohen's New York Times opinion about the implications of BREXIT is summarized. His ideas are then framed by complex adaptive system (CAS) theory and reviewed. BREXIT
Scott Galloway argues that Apple, Amazon, Facebook and Google are monopolists that trade workers for technology. Monopolies that he argues should be broken up to ensure the return of a middle class. Following our summary of his arguments, RSS comments on these arguments assuming they relate to a complex adaptive system (CAS). While Scott's issue is highly significant his analysis conflicts with relevant CAS history and theory. Monopoly job killers
The IPO of Netscape is defined as the key emergent event of the New Economy by Michael Mandel. Following the summary of Mandel's key points the complex adaptive system (CAS) aspects are highlighted. New economy
Ed Conway argues that Bretton Woods produced a unique set of rules and infrastructure for supporting the global economy. It was enabled by the experience of Keynes and White during and after the First World War, their dislike of the Gold Standard, the necessity of improving the situation between the wars and the opportunity created by the catastrophe of the Second World War. He describes how it was planned and developed. How it emerged from the summit. And he shows how the opportunity inevitably allowed the US to replace the UK at the center of the global economy. Like all plans there are mistakes and Conway takes us through them and how the US recovered the situation as best it could. And then Conway describes the period after Bretton Woods collapsed. He explains what followed and also compares the relative performance of the various periods before during and after Bretton Woods. Following our summary of his arguments RSS comments from the perspective of Complex Adaptive System (CAS) theory. Conway's book illustrates the rule making and infrastructure that together build an evolved amplifier. He shows the strategies at play of agents that were for and against the development and deployment of the system. And The Summit provides a key piece of the history of our global economic CAS. Bretton woods
A key agent in the 1990 - 2008 housing expansion Countrywide is linked into the residential mortgage value delivery system (VDS) by Paul Muolo and Mathew Padilla. But they show the VDS was full of amplifiers and control points. With no one incented to apply the brakes the bubble grew and burst. Following the summary of Muolo and Padilla's key points the complex adaptive system (CAS) aspects are highlighted. Housing amplifiers
Satyajit Das uses an Indonesian company's derivative trades to introduce us to the workings of the international derivatives system. Das describes the components of the value delivery system and the key transactions. He demonstrates how the system interacted with emerging economies expanding them, extracting profits and then moving on as the induced bubbles burst. Following Das's key points the complex adaptive system (CAS) aspects are highlighted. Derivative systems
Johnson & Kwak argue that expanding the national debt provides a hedge against unforeseen future problems, as long as creditors are willing to continue lending. They illustrate different approaches to managing the debt within the US over its history and of the eighteenth century administrations of England and France. The US embodies two different political and economic systems which approach the national debt differently: Taxes to support a sinking fund to ensure credit to leverage fiscal power in: Wars, Pandemics, Trade disputes, Hurricanes, Social programs; Starting with Hamilton, Lincoln & Chase, Wilson, FDR; Low taxes, limited infrastructure, with risk assumed by individuals: Advocated by President's Jefferson & Madison, Reagan, George W. Bush (Gingrich); Johnson & Kwak develop a model of what the US government does. They argue that the conflicting sinking fund and low tax approaches leaves the nation 'stuck in the middle' with a future problem. And they offer their list of 'first principles' to help assess the best approach for moving from 2012 into the future. They conclude the question is still political. They hope it can be resolved with an awareness of their detailed explanations. They ask who is willing to push all the coming risk onto individuals. Following our summary of their arguments RSS frames them from the perspective of complex adaptive system (CAS) theory. Historically developing within the global cotton value delivery system, key CAS features are highlighted. National debt
Robert Gordon argues that the inventions of the second industrial revolution were the foundation for American economic growth. Gordon shows how flows of people into difficult rural America built a population base which then took the opportunity to move on to urban settings: Houses, Food in supermarkets, Clothes in department stores; that supported increasing productivity and standard of living. The deployment of nationwide networks: Rail, Road, Utilities; terminating in the urban housing and work places allowing the workers to leverage time saving goods and services, which helped grow the economy. Gordon describes the concomitant transformation of: Communications and advertising Credit and finance Public health and the health care network Health insurance Education Social and welfare services Counter intuitively the constraints introduced before and in the Great Depression and the demands of World War 2 provide the amplifiers that drive the inventions deeply and fully into every aspect of the economy between 1940 and 1970 creating the exceptional growth and standard of living of post war America. Subsequently the rate of growth was limited until the shift of women into the workplace and the full networking of voice and data supported the Internet and World Wide Web completed the third industrial revolution, but the effects were muted by the narrow reach of the technologies. The development of Big Data, Robots, and Artificial Intelligence may support additional growth, but Gordon is unconvinced because of the collapse of the middle class. Following our summary of Gordon's book RSS frames his arguments from the perspective of complex adaptive system (CAS) theory. American growth
Carl Menger argues that the market induced the emergence of money based on the attractive features of precious metals. He compares the potential for government edicts to create money but sees them as lacking. Following our summary of his arguments RSS frames his arguments from the perspective of complex adaptive system (CAS) theory. With two hundred years of additional knowledge we conclude that precious metals are not as attractive as Menger asserts. Government backed promissory notes are analogous to: Other evolved CAS forms of ubiquitous high energy transaction intermediates and Schematic strategies that are proving optimal in supporting survival and replication in the currently accessible niches. Emergence of money
Economic complexity
Sven Beckert describes the historic transformation of the growing, spinning, weaving, manufacture of cotton goods and their trade over time. He describes the rise of a first global commodity, its dependence on increasing: military power, returns for the control points in the value delivery system(VDS), availability of land and labor to work it including slaves. He explains how cotton offered the opportunity for industrialization further amplifying the productive capacity of the VDS and the power of the control points. This VDS was quickly copied. The increased capacity of the industrialized cotton complex adaptive system (CAS) required more labor to operate the machines. Beckert describes the innovative introduction of wages and the ways found to mobilize industrial labor. Beckert describes the characteristics of the industrial cotton CAS which made it flexible enough to become globally interconnected. Slavery made the production system so cost effective that all prior structures collapsed as they interconnected. So when the US civil war blocked access to the major production nodes in the American Deep South the CAS began adapting. Beckert describes the global reconstruction that occurred and the resulting destruction of the traditional ways of life in the global countryside. This colonial expansion further enriched and empowered the 'western' nation states. Beckert explains how other countries responded by copying the colonial strategies and creating the opportunities for future armed conflict among the original colonialists and the new upstarts. Completing the adaptive shifts Beckert describes the advocates for industrialization in the colonized global south and how over time they joined the global cotton CAS disrupting the early western manufacturing nodes and creating the current global CAS dominated by merchants like Wal-Mart pulling goods through a network of clothing manufacturers, spinning and weaving factories, and growers competing with each other on cost. Following our summary of Beckert's book, RSS comments from the perspective of CAS theory. The transformation of disconnected peasant farmers, pastoral warriors and their lands into a supply chain for a highly profitable industrial CAS required the development over time: of military force, global transportation and communication networks, perception and representation control networks, capital stores and flows, models, rules, standards and markets; along with the support at key points of: barriers, disruption, and infrastructure and evolved amplifiers. The emergent system demonstrates the powerful constraining influence of extended phenotypic alignment. Globalization from cotton
The structure and problems of the US health care network is described in terms of complex adaptive system (CAS) theory. The network: Is deeply embedded in the US nation state. It reflects the conflict between two opposing visions for the US: high tax with safety net or low tax without. The emergence of a parasitic elite supported by tax policy, further constrains the choices available to improve the efficiency and effectiveness of the network. The US is optimized to sell its citizens dangerous levels of: salt, sugar, cigarettes, guns, light, cell phones, opioids, costly education, global travel, antibacterials, formula, foods including endocrine disrupters; Accepting the US controlled global supply chain's offered goods & services results in: debt, chronic stress, amplified consumption and toxic excess, leading to obesity, addiction, driving instead of walking, microbiome collapse; Is incented to focus on localized competition generating massive & costly duplication of services within physician based health care operations instead of proven public health strategies. This process drives increasing research & treatment complexity and promotes hope for each new technological breakthrough. Is amplified by the legislatively structured separation and indirection of service development, provision, reimbursement and payment. Is impacted by the different political strategies for managing the increasing cost of health care for the demographic bulge of retirees. Is presented with acute and chronic problems to respond to. As currently setup the network is tuned to handle acute problems. The interactions with patients tend to be transactional. Includes a legislated health insurance infrastructure which is: Costly and inefficient Structured around yearly contracts which undermine long-term health goals and strategies. Is supported by increasingly regulated HCIT which offers to improve data sharing and quality but has entrenched commercial EHR products deep within the hospital systems. Health care
Deaton describes the wellbeing of people around the world today. He explains the powerful benefit of public health strategies and the effect of growth in material wellbeing but also the corrosive effects of aid. Following our summary of Deaton's arguments RSS comments from the perspective of complex adaptive system (CAS) theory. The situation he describes is complex including powerful amplifiers, alignment and incentives that overlap broadly with other RSS summaries of adaptations of: The biosphere, Politics, Economics, Philosophy and Health care. Improving wellbeing
Donald Barlett and James Steele write about their investigations of the major problems afflicting US health care as of 2006. Problems of US health care
Glenn Steele & David Feinberg review the development of the modern Geisinger healthcare business after its near collapse following the abandoned merger with Penn State AMC. After an overview of the business, they describe how a calamity unfolding around them supported building a vision of a better US health care network. And they explain: How they planned out the transformation, Leveraging an effective governance structure, Using a strategy to gain buy in, Enabling reengineering at the clinician patient interface. Implementing the reengineering for acute, chronic & hot spot care; to help the patients and help the physicians. Geisinger's leverage of biologics. Reengineering healing with ProvenExperience. Where Geisinger is headed next. Following our summary of their arguments RSS comments on them. We frame their ideas with complex adaptive system (CAS) theory. E2E insured quality care
Robert Pearl explains the perspectives of a health care leader and son who know that the current health care network interacts with human behavior to induce a poorly performing system that caused his father's death. But he is confident that these problem perceptions can be changed. Once that occurs he asserts the network will become more integrated, coordinated, collaborative, better led, and empathetic to their patients. The supporting technology infrastructure will be made highly interoperable. All that will reduce medical errors and make care more cost effective. Following our summary of his arguments RSS comments on them. We frame his ideas with complex adaptive system (CAS) theory including synergistic examples of these systems in operation. The health care network is built out of emergent human agents. All agents must model the signals they perceive to represent and respond to them. Pinker explains how this occurs. Sapolsky explains why fear and hierarchy are so significant. He includes details of Josh Green's research on morality and death. Charles Ferguson highlights the pernicious nature of financial incentives. Bad medical models
US healthcare is ripe for disruption. Christensen, Grossman and Hwang argue that technologies are emerging which will support low cost business models that will undermine the current network. Applying complex adaptive system (CAS) theory to these arguments suggests that the current power hierarchy can effectively resist these progressive forces. Disrupting health care
Atul Gawande writes about the opportunity for a thirty per cent improvement in quality in medicine by organizing to deploy as agent based teams using shared schematic plans and distributed signalling or as he puts it the use of checklists. With vivid examples from a variety of situations including construction, air crew support and global health care Gawande illustrates the effects of complexity and how to organize to cope with it. Following the short review RSS additionally relates Gawande's arguments to its models of complex adaptive systems (CAS) positioning his discussion within the network of US health care, contrasting our view of complexity, comparing the forces shaping his various examples and reviewing facets of complex failures. Complexity checklists
Friedman and Martin leverage the lifelong data collected on 1,528 bright individuals selected by Dr. Lewis Terman starting in 1921, to understand what aspects of the subjects' lives significantly affected their longevity. Looking broadly across each subject's: Personality, Education, Parental impacts, Energy levels, Partnering, Careers, Religion, Social networks, Gender, Impact from war and trauma; Friedman and Martin are able to develop a set of model pathways, which each individual could be seen to select and travel along. Some paths led to the traveler having a long life. Others were problematic. The models imply that the US approach to health and wellness should focus more on supporting the development and selection of beneficial pathways. Following our summary of their arguments RSS comments from the perspective of CAS theory. The pathways are most applicable to bright individuals with the resources and support necessary to make and leverage choices they make. Striving to enter and follow a beneficial pathway seems sensible but may be impossible for individuals trapped in a collapsing network, starved of resources. Promoting longevity
Gawande uses his personal experience, analytic skills and lots of stories of innovators to demonstrate better ways of coping with aging and death. He introduces the lack of focus on aging and death in traditional medicine. And goes on to show how technology has amplified this stress point. He illustrates the traditional possibility of the independent self, living fully while aging with the support of the extended family. Central planning responded to the technological and societal changes with poorly designed infrastructure and funding. But Gawande then contrasts the power of bottom up innovations created by experts responding to their own family situations and belief systems. Gawande then explores in depth the challenges that unfold currently as we age and become infirm. He notes that the world is following the US path. As such it will have to understand the dilemma of integrating medical treatment and hospice strategies. He notes that all parties involved need courage to cope. He proposes medicine must aim to assure well being. At that point all doctors will practice palliative care. Complex adaptive system (CAS) models of agency, death, evolution, cooperation and adaptations to new technologies are discussed. Agent death
Sonia Shah reviews the millennia old (500,000 years) malarial arms race between Humanity, Anopheles mosquitoes and Plasmodium. 250 - 500 million people are infected each year with malaria and one million die. Malaria
Peter Medawar writes about key historic events in the evolution of medical science. Medical science events
Using John Holland's theory of adaptation in complex systems Baldwin and Clark propose an evolutionary theory of design. They show how this can limit the interdependencies that generate complexity within systems. They do this through a focus on modularity. Modular designed systems
Lou Gerstner describes the challenges he faced and the strategies he used to successfully restructure the computer company IBM. Compartmented systems
Grady Booch advocates an object oriented approach to computer software design. Object based systems
Bertrand Meyer develops arguments, principles and strategies for creating modular software. He concludes that abstract data types and inheritence make object orientation a superior methodology for software construction. Complex adaptive system (CAS) theory suggests agents provide an alternative strategy to the use of objects. Software construction
Tools and the businesses that produce them have evolved dramatically. W Brian Arthur shows how this occurred. Tools
Matt Ridley demonstrates the creative effect of man on the World. He highlights: A list of preconditions resulting in Additional niche capture & more free time Building a network to interconnect memes processes & tools which Enabling inter-generational transfers Innovations that help reduce environmental stress even as they leverage fossil fuels Memetic trading networks
Brynjolfsson and McAfee explore the effects of Moore's law on the economy. They argue it has generated exponential growth. This has been due to innovation. It has created a huge bounty of additional wealth. But the wealth is spread unevenly across society. They look at the short and long term implications of the innovation bounty and spread and the possible future of technology. Following our summary of their arguments RSS comments from the perspective of CAS theory. Brilliant technologies
Salman Khan argues that the evolved global education system is inefficient and organized around constraining and corralling students into accepting dubious ratings that lead to mundane roles. He highlights a radical and already proven alternative which offers effective self-paced deep learning processes supported by technology and freed up attention of teams of teachers. Building on his personal experience of helping overcome the unjustified failing grade of a relative Khan: Iteratively learns how to teach: Starting with Nadia, Leveraging short videos focused on content, Converging on mastery, With the help of neuroscience, and filling in dependent gaps; resulting in a different approach to the mainstream method. Assesses the broken US education system: Set in its ways, Designed for the 1800s, Inducing holes that are hidden by tests, Tests which ignore creativity. The resulting teaching process is so inefficient it needs to be supplemented with homework. Instead teachers were encouraging their pupils to use his tools at home so they could mentor them while they attended school, an inversion that significantly improves the economics. Enters the real world: Builds a scalable service, Working with a real classroom, Trying stealth learning, At Khan Academy full time, In the curriculum at Los Altos, Supporting life-long learning. Develops The One World Schoolhouse: Back to the future with a one room school, a robust teaching team, and creativity enabled; so with some catalysis even the poorest can become educated and earn credentials for current jobs. Wishes he could also correct: Summer holidays, Transcript based assessments, College education; Concludes it is now possible to provide the infrastructure for creativity to emerge and to support risk taking. Following our summary of his arguments RSS frames them from the perspective of complex adaptive system (CAS) theory. Disruption is a powerful force for change but if its force is used to support the current teachers to adopt new processes can it overcome the extended phenotypic alignment and evolutionary amplifiers sustaining the current educational network? Education versus guilds
Amy Chua and Jed Rubenfeld's New York Times opinion based on The Triple Package is summarized. Their ideas are then framed by CAS theory and reviewed. What drives success
Peter Turchin describes how major pre-industrial empires developed due to effects of geographic boundaries constraining the empires and their neighbors' interactions. Turchin shows how the asymmetries of breeding rates and resource growth rates results in dynamic cycles within cycles. After the summary of Turchin's book complex adaptive system (CAS) theory is used to augment Turchins findings. Warrior groups
Through the operation of three different food chains Michael Pollan explores their relative merits. The application of complex adaptive system (CAS) theory highlights the value of evolutionary testing of the food chain. Natural systems
E. O. Wilson & Bert Holldobler illustrate how bundled cooperative strategies can take hold. Various social insects have developed strategies which have allowed them to capture the most valuable available niches. Like humans they invest in specialization and cooperate to subdue larger, well equipped competitors. Insect superorganisms
Computational theory of the mind and evolutionary psychology provide Steven Pinker with a framework on which to develop his psychological arguments about the mind and its relationship to the brain. Humans captured a cognitive niche by natural selection 'building out' specialized aspects of their bodies and brains resulting in a system of mental organs we call the mind. He garnishes and defends the framework with findings from psychology regarding: The visual system - an example of natural selections solutions to the sensory challenges of inverse modeling of our environment; Intensions - where he highlights the challenges of hunter gatherers - making sense of the objects they perceive and predicting what they imply and natural selections powerful solutions; Emotions - which Pinker argues are essential to human prioritizing and decision making; Relationships - natural selection's strategies for coping with the most dangerous competitors, other people. He helps us understand marriage, friendships and war. These conclusions allow him to understand the development and maintenance of higher callings: Art, Music, Literature, Humor, Religion, & Philosophy; and develop a position on the meaning of life. Complex adaptive system (CAS) modeling allows RSS to frame Pinker's arguments within humanity's current situation, induced by powerful evolved amplifiers: Globalization, Cliodynamics, The green revolution and resource bottlenecks; melding his powerful predictions of the drivers of human behavior with system wide constraints. The implications are discussed. Computationally adapted mind
The complexity of behavior is explored through Sapolsky developing scenarios of our best and worst behaviors across time spans, and scientific subjects including: anthropology, psychology, neuroscience, sociology. The rich network of adaptive flows he outlines provides insights and highlight challenges for scientific research on behavior. Complex adaptive system (CAS) theory builds on Sapolsky's details highlighting the strategies that evolution has captured to successfully enter niches we now occupy. CAS behavior
Carlo Rovelli resolves the paradox of time. Rovelli initially explains that low level physics does not include time: A present that is common throughout the universe does not exist Events are only partially ordered. The present is localized The difference between past and future is not foundational. It occurs because of state that through our blurring appears particular to us Time passes at different speeds dependent on where we are and how fast we travel Time's rhythms are due to the gravitational field Our quantized physics shows neither space nor time, just processes transforming physical variables. Fundamentally there is no time. The basic equations evolve together with events, not things Then he explains how in a physical world without time its perception can emerge: Our familiar time emerges Our interaction with the world is partial, blurred, quantum indeterminate The ignorance determines the existence of thermal time and entropy that quantifies our uncertainty Directionality of time is real but perspectival. The entropy of the world in relation to us increases with our thermal time. The growth of entropy distinguishes past from future: resulting in traces and memories Each human is a unified being because: we reflect the world, we formed an image of a unified entity by interacting with our kind, and because of the perspective of memory The variable time: is one of the variables of the gravitational field. With our scale we don't register quantum fluctuations, making space-time appear determined. At our speed we don't perceive differences in time of different clocks, so we experience a single time: universal, uniform, ordered; which is helpful to our decisions Emergence of time
Consciousness has confounded philosophers and scientists for centuries. Now it is finally being characterized scientifically. That required a transformation of approach. Realizing that consciousness was ill-defined neuroscientist Stanislas Dehaene and others characterized and focused on conscious access. In the book he outlines the limitations of previous psychological dogma. Instead his use of subjective assessments opened the window to contrast totally unconscious brain activity with those including consciousness. He describes the research methods. He explains the contribution of new sensors and probes that allowed the psychological findings to be correlated, and causally related to specific neural activity. He describes the theory of the brain he uses, the 'global neuronal workspace' to position all the experimental details into a whole. He reviews how both theory and practice support diagnosis and treatment of real world mental illnesses. The implications of Dehaene's findings for subsequent consciousness research are outlined. Complex adaptive system (CAS) models of the brain's development and operation introduce constraints which are discussed. Conscious access
Reading and writing present a conundrum. The reader's brain contains neural networks tuned to reading. With imaging a written word can be followed as it progresses from the retina through a functional chain that asks: Are these letters? What do they look like? Are they a word? What does it sound like? How is it pronounced? What does it mean? Dehaene explains the importance of education in tuning the brain's networks for reading as well as good strategies for teaching reading and countering dyslexia. But he notes the reading networks developed far too recently to have directly evolved. And Dehaene asks why humans are unique in developing reading and culture. He explains the cultural engineering that shaped writing to human vision and the exaptations and neuronal structures that enable and constrain reading and culture. Dehaene's arguments show how cellular, whole animal and cultural complex adaptive system (CAS) are related. We review his explanations in CAS terms and use his insights to link cultural CAS that emerged based on reading and writing with other levels of CAS from which they emerge. Evolved reading
Read Montague explores how brains make decisions. In particular he explains how: Evolution can create indirect abstract models, such as the dopamine system, that allow Life changing real-time decisions to be made, and how Schematic structures provide encodings of computable control structures which operate through and on incomputable, schematically encoded, physically active structures and operationally associated production functions. Receptor indirection
Richard Dawkin's explores how nature has created implementations of designs, without any need for planning or design, through the accumulation of small advantageous changes. Accumulating small changes
Russ Abbott explores the impact on science of epiphenomena and the emergence of agents. Autonomous emergence
Terrence Deacon explores how constraints on dynamic flows can induce emergent phenomena which can do real work. He shows how these phenomena are sustained. The mechanism enables the development of Darwinian competition. Constraint based phenomena

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This page introduces the complex adaptive system (CAS) theory frame. The theory is positioned relative to the natural sciences. It catalogs the laws and strategies which underpin the operation of systems that are based on the interaction of emergent agents.
John Holland's framework for representing complexity is outlined. Links to other key aspects of CAS theory discussed at the site are presented.

Theory

This web frame introduces example real world complex adaptive systems (CAS):

Assumptions of randomness & equilibrium allowed the wealthy & powerful to expand the size and leverage of stock markets, by placing at risk the insurance and retirement savings of the working class. The assumptions are wrong but remain entrenched.
The US nation was built from two divergent political views of: Jefferson and Hamilton. It also reflects the development of competing ancient ideas of Epicurus and Cyril. But the collapse of Bretton Woods forced Wall Street into a position of power, while the middle and working class were abandoned by the elites. Housing financed with cash from oil and derivative transactions helped hide the shift.
Most US health care is still operating the way cars built in the 1940s did. Geisinger is an example of better solution. But transforming the whole network is a challenge. And public health investment has proved far more beneficial.
Helping our children learn to be effective adults is part of our humanity, but we have created a robust but deeply flawed education system. Better alternatives have emerged.
Reading and writing emerged allowing our good ideas to become a second genetic material.
The emergence of the global economy in the 1600s and its subsequent development;

It explains how the examples relate to each other, why we all have trouble effectively comprehending these systems and explains how our inexperience with CAS can lead to catastrophe. It outlines the items we see as key to the system and why.

Examples

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Rob's Strategy Studio aims to celebrate and illuminate complex adaptive systems (CAS) just as an art studio does art.

By way of introduction it notes the complex interactions that led to the partnership that discovered the DNA double helix and genetic code.

The page introduces the RSS vision 'I act, therefore I think' approach and the RSS mission.

It describes how many key aspects of the world are CAS including businesses.

Finally the page explains each of the framed pictures displayed at the studio including the other aspects explored in this vision frame.

Vision

This page introduces the programs that the Adaptive Web Framework (AWF) develops and uses to deploy Rob's Strategy Studio (RSS).
The programs are structured to obey complex adaptive system (CAS) principles. That allows AWF to experiment and examine the effects.
A production program generates the web pages.
A testing system tests the production program. It uses a framework to support the test programs. This is AWF's agent programming framework as described in the agent-based programming presentation.
An example of the other AWF agent-based programs that are also described in the frame is the virtual robot.
Finally a strength, weaknesses, opportunities and threats assessment is presented.

Perl

This page introduces a series of asymmetries which encourage different strategic approaches.
The differences found in business, sexual selection, gamete structure, as well as in chess encourage escalations in the interactions.
And yet the systems including these asymmetries can be quite stable.

Asymmetries

This web frame includes a set of presentations about complex adaptive systems (CAS)

Presentations

Economic complexity

Summary

Eric Beinhocker sets out to answer a question Adam Smith developed in the Wealth of Nations: what is wealth? To do this he replaces traditional economic theory, which is based on the assumption that an economy is a human SuperOrganism complex adaptive system (CAS) which operates and controls trade flows within a rich niche. Economics models economies. Robert Gordon has described the evolution of the American economy. Like other CAS economic flows are maintained far from equilibrium by: demand, financial flows and constraints, supply infrastructure constraints, political and military constraints; ensuring wealth, legislative control, legal contracts and power have significant leverage through evolved amplifiers.
is a system in equilibrium, with complexity economics in which the economy is modeled as a complex adaptive system (

CAS).

He introduces Sugerscape to illustrate an economic CAS model in action. And then he explains the major features of a CAS economy: Dynamics, Agents, Networks, Emergence, and Evolution.

Building on complexity economics Beinhocker reviews how evolution applies to the economy to build wealth. He explains how design spaces map strategies to instances of physical are defined by Beinhocker as methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal or goals. The effects of nuclear and genetic physical technologies are already challenging. Beinhocker adds artificial intelligence and nanotechnology as emerging physical technologies that support access to huge new niches and introduce additional challenges.
and social technologies are defined by Beinhocker as methods and designs for organizing people in pursuit of a goal or goals. He views the three most significant social technologies as: markets, science, and democracy. A war example is Fuller & Liddell Hart's theory of high-speed tank warfare, subsequently instantiated by Guderian as Blitzkrieg.
. And he identifies the interactors is evolutionary philosopher David Hull's term for the schematically specified, instantiated aggregated agent which can interact with the proximate environment and is subject to selection pressures. Dawkins's equivalent term is 'vehicle'.
and selection mechanism of economic evolution.

This allows Beinhocker to develop a new definition of wealth.

In the rest of the book Beinhocker looks at the consequences of adopting complexity economics for business and society: Strategy, Organization, Finance, & Politics & Policy.

Following our summary of his arguments, RSS is Rob's Strategy Studio explores his conclusions and aligns Beinhocker's model of CAS with the

CAS theory and evidence we leverage.

The Origin of Wealth

In Eric Beinhocker's book 'The Origin of Wealth' he argues that the global economy is a human SuperOrganism complex adaptive system (CAS) which operates and controls trade flows within a rich niche. Economics models economies. Robert Gordon has described the evolution of the American economy. Like other CAS economic flows are maintained far from equilibrium by: demand, financial flows and constraints, supply infrastructure constraints, political and military constraints; ensuring wealth, legislative control, legal contracts and power have significant leverage through evolved amplifiers.
is a complex adaptive system (CAS) where he concludes wealth is knowledge. That is a radical shift from the highly influential orthodox ideas developed over the last century by traditional economics.

A Paradigm Shift

How Is Wealth Created?

Beinhocker notes that wealth is instantiated in different ways in different situations and cultures is how we do and think about things, transmitted by non-genetic means as defined by Frans de Waal. CAS theory views cultures as operating via memetic schemata evolved by memetic operators to support a cultural superorganism. Evolutionary psychology asserts that human culture reflects adaptations generated while hunting and gathering. Dehaene views culture as essentially human, shaped by exaptations and reading, transmitted with support of the neuronal workspace and stabilized by neuronal recycling. Sapolsky argues that parents must show children how to transform their genetically derived capabilities into a culturally effective toolset. He is interested in the broad differences across cultures of: Life expectancy, GDP, Death in childbirth, Violence, Chronic bullying, Gender equality, Happiness, Response to cheating, Individualist or collectivist, Enforcing honor, Approach to hierarchy; illustrating how different a person's life will be depending on the culture where they are raised. Culture:

Is deployed during pregnancy & childhood, with parental mediation. Nutrients, immune messages and hormones all affect the prenatal brain. Hormones: Testosterone with anti-Mullerian hormone masculinizes the brain by entering target cells and after conversion to estrogen binding to intracellular estrogen receptors; have organizational effects producing lifelong changes. Parenting style typically produces adults who adopt the same approach. And mothering style can alter gene regulation in the fetus in ways that transfer epigenetically to future generations! PMS symptoms vary by culture.
Is also significantly transmitted to children by their peers during play. So parents try to control their children's peer group.
Is transmitted to children by their neighborhoods, tribes, nations etc.
Influences the parenting style that is considered appropriate.
Can transform dominance into honor. There are ecological correlates of adopting honor cultures. Parents in honor cultures are typically authoritarian.
Is strongly adapted across a meta-ethnic frontier according to Turchin.
Across Europe was shaped by the Carolingian empire.
Can provide varying levels of support for innovation.
Produces consciousness according to Dennet.

and changes in what it tangibly represents. Ultimately Beinhocker wants to understand what wealth is and how more can be created. And if so can it be used to benefit mankind. But to do that he argues economics must be viewed as a system. Today this system includes a network of vast complexity. And no one controls this network.

Beinhocker proposes 2.5 million years ago as the economy is a human SuperOrganism complex adaptive system (CAS) which operates and controls trade flows within a rich niche. Economics models economies. Robert Gordon has described the evolution of the American economy. Like other CAS economic flows are maintained far from equilibrium by: demand, financial flows and constraints, supply infrastructure constraints, political and military constraints; ensuring wealth, legislative control, legal contracts and power have significant leverage through evolved amplifiers.
's start point: when two hominids traded tools. Fire and a broader range of tools had emerged over the next million years. Homo sapien bands appeared around 130,000 years ago with more sophisticated tools and language. Then 35,000 years ago people settled, there was division of labor and trade was observed between these hunter gatherer groups.

Beinhocker compares the lifestyle of a present day Yanomamo is a tribe of contemporary Venezuelan hunter gatherers. They are still isolated from modern societies (Nov 2018). They have been a popular model of historic hunter gatherers: discussed in Behave, and in The Origin of Wealth.
hunter gatherer with a New Yorker. The economic choices available to the New Yorker are astronomically larger than the Yanomamo. The Yanomamo lifestyle by contrast is fairly similar to our ancestors of 15,000 years ago. Around 1750 GDP is:

Gross domestic product which measures the total of goods and services produced in a given year within the borders of a given country (output) according to Piketty. Gordon argues to include products produced in the home & market-purchased goods and services, following Becker's theory of time use. Gordon stresses innovation is the ultimate source of all growth in output per worker-hour. GDP growth per person is equal to the growth in labor productivity + growth in hours worked per person. GDP has many problems. Gordon concludes that between 1870 and 1940 all available measures GDP is hugely understated because:

GDP is a poor measure of:

Value & wealth
Who gets what
Global supply chains

GDP excludes:

Reduction in infant mortality between 1890 (22%) and 1950 (1%)
Brightness & safety of electric light,
Increased variety of food including refrigeration transported fresh meat and processed food
Convenience and economies of scale of the department store and mail order catalog and resulting product price reductions
Services by house makers

Time & health gains from having flush toilets, integrated sewer networks; rather than having to physically remove effluent and cope with fecal-oral transmission

Leisure
Costs & benefits of different length work weeks
Speed and flexibility of motor vehicles - which were not included in the CPI until 1935, after the transformation had occurred. And competition from improved foreign vehicles, while it provides purchaser/user with improved standard of living (less breakdowns, repairs, etc.) is measured as reduced domestic manufacture
Coercion and corruption to obtain resources
Consumption impact of finite resources: coal, oil;
Destruction impact of loss of entire irreplaceable species

GDP includes items that should be excluded:

Cost of waste - cleaning up pollution (single use indestructible plastic bags), building prisons, commuting to work, and cars left parked most of the time; should be subtracted

Guanine-di-phosphate is a nucleotide base.

started to grow exponentially.

Beinhocker builds a test to evaluate theories of the economy is a human SuperOrganism complex adaptive system (CAS) which operates and controls trade flows within a rich niche. Economics models economies. Robert Gordon has described the evolution of the American economy. Like other CAS economic flows are maintained far from equilibrium by: demand, financial flows and constraints, supply infrastructure constraints, political and military constraints; ensuring wealth, legislative control, legal contracts and power have significant leverage through evolved amplifiers.
. It must explain how:

Beinhocker suggests evolution provides the only viable theory which is able to explain the tests. But he notes care must be taken in framing economics with an evolutionarly model. While evolution facilitates 'design' with no designer, the ecomomy has lots of designers. Beinhocker argues human rationality & creativity feed and shape the workings of the evolutionary algorithm rather than replacing it.

Beinhocker views economic evolution as based on three interlinked processes: (1) Physical technology are defined by Beinhocker as methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal or goals. The effects of nuclear and genetic physical technologies are already challenging. Beinhocker adds artificial intelligence and nanotechnology as emerging physical technologies that support access to huge new niches and introduce additional challenges.
evolution, (2) Social technology are defined by Beinhocker as methods and designs for organizing people in pursuit of a goal or goals. He views the three most significant social technologies as: markets, science, and democracy. A war example is Fuller & Liddell Hart's theory of high-speed tank warfare, subsequently instantiated by Guderian as Blitzkrieg.
evolution: how to organize people to do things including: agriculture, the rule of law, money, venture capital is venture capital, venture companies invest in startups with intangable assets
; fused together by (3) businesses, which express these technologies as products and services. Businesses similarly evolve. This complexity economics assumes the economy is a human SuperOrganism complex adaptive system (CAS) which operates and controls trade flows within a rich niche. Economics models economies. Robert Gordon has described the evolution of the American economy. Like other CAS economic flows are maintained far from equilibrium by: demand, financial flows and constraints, supply infrastructure constraints, political and military constraints; ensuring wealth, legislative control, legal contracts and power have significant leverage through evolved amplifiers.
is a complex adaptive system. But he notes mainstream economics is built on a conflicting assumption of an economy being an equilibrium system.

If complexity economics holds, there must be an evolutionary explanation for the creation of economic wealth.

Additionally as this paradigm shift becomes accepted Beinhocker suggests how it will impact both busines and society.

Traditional Economics - A World in Equilibrium

Business leaders have recognized that traditional economics has not helped them predict and cope with crisis. It is assumed that economic theory is highly idealized, using untested data, and unrealistic assumptions. Central bankers such as Alan Greenspan noted that they did not know how the economy is a human SuperOrganism complex adaptive system (CAS) which operates and controls trade flows within a rich niche. Economics models economies. Robert Gordon has described the evolution of the American economy. Like other CAS economic flows are maintained far from equilibrium by: demand, financial flows and constraints, supply infrastructure constraints, political and military constraints; ensuring wealth, legislative control, legal contracts and power have significant leverage through evolved amplifiers.
works.

But the huge wealth of developed nations is attributed to leverage of traditional economics theories.

Beinhocker asserts the issue is that economics is not fulfilling its true potential as a science:

The big ideas are over 100 years old
The formal theories and mathematical models are undermined by unrealistic assumptions or directly contradicted by real-world data.

Beinhocker outlines the conventional wisdom, history and key concepts of traditional economics:

Adam Smith's Wealth of Nations

Suggested that wealth is created when people transform raw materials into items that people want. Smith realized that improving people's productivity is the efficiency with which an agent's selected strategy converts the inputs to an action into the resulting outputs. It is a complex capability of agents. It will depend on the agent having: time, motivation, focus, appropriate skills; the coherence of the participating collaborators, and a beneficial environment including the contribution of: standardization of inputs and outputs, infrastructure and evolutionary amplifiers.
will increase wealth creation for each person. Smith concluded that productivity is the efficiency with which an agent's selected strategy converts the inputs to an action into the resulting outputs. It is a complex capability of agents. It will depend on the agent having: time, motivation, focus, appropriate skills; the coherence of the participating collaborators, and a beneficial environment including the contribution of: standardization of inputs and outputs, infrastructure and evolutionary amplifiers.
could be increased with division of labor that allows specialization.
Smith suggested that the distribution of resources and wealth should allow individuals to pursue their own self-interest and choices. But resources should be allocated to maximize the efficiency and total wealth of the society. Smith asserted that competitive markets allow this most efficient allocation through the signal of price.

Jacques Turgot argued that governments should minimize their interference in the operations of markets. He identified the law of diminishing returns which will drive an economy is a human SuperOrganism complex adaptive system (CAS) which operates and controls trade flows within a rich niche. Economics models economies. Robert Gordon has described the evolution of the American economy. Like other CAS economic flows are maintained far from equilibrium by: demand, financial flows and constraints, supply infrastructure constraints, political and military constraints; ensuring wealth, legislative control, legal contracts and power have significant leverage through evolved amplifiers.
towards stability and suggests a limit to supply.
Jeremy Bentham introduced the rational actor and utility which he concluded shaped demand.
Hermann Gossen developed Bentham's ideas and defined the law of diminishing marginal utility, which suggested a limit to demand.
Leon Walras's Elements of pure economics aimed to provide a mathematical foundation for economics comparable to the work of Newton, Leibniz, Lagrange, Euler and Hamilton in science. Walras used equilibrium as the core model. And for the first time he applied the sophisticated mathematics developed for physics to economic problems.
William Jevons's Theory of Political Economy applied the equations of field theory to Utility, and diminishing returns to consumption to build a mathematical model of human behavior. Trade enabled the redistribution that allowed an optimal equilibrium to be achieved.
Vilfredo Pareto enabled an estimation of utility by developing a model of types of trade. He concluded that markets would reach the Pareto optimum allocates resources measurably so that each change must make at least one person better off and make no one worse off.
when all trades that are win-win or win-no-loose (Pareto superior) trades have occurred. Utility was shown to be a relative measure.
Alfred Marshall then bridged Jevon's single market in partial equilibrium with Walras's model of interlinked markets to define an economy in general equilibrium.
John Hicks's Value and Capital integrated Walras, Marshall and Pareto's ideas into a coherent theory.
Paul Samuelson's Foundation of Economic Analysis extended Hicks's theory into a mathematical standard model. He equated observed choices (preferences) with utility allowing it to be measured.
Kenneth Arrow & Gerard Debreu linked Walras's general equilibrium with Pareto's optimality allocates resources measurably so that each change must make at least one person better off and make no one worse off.
in a very general theory. They showed how prices act as signals. Their general equilibrium theory was based on a small set of axioms. But some of these were hard to relate to observations.

Beinhocker notes that from Walras to Pareto the equilibrium mathematics was best suited to studying the allocation of wealth. Joseph Schumpeter was skeptical that this approach would explain the growth of wealth. Schumpeter observed that technological progress happens in random streams of discoveries. He concluded that wealth is created when entrepreneurs turn technologies into commercially successful enterprises. But he could not find an associated mathematical model that coped with innovation's disruptive disequilibrium. Robert Solow used equilibrium assumptions to provide that theory for growth. He:

Viewed the economy as being in a dynamic equilibrium
By making the rate of population growth and the rate of technological change as exogenous are changes to the external inputs of a traditional equilibrium economic model. The model does not change these variables but takes them as inputs. Typical exogenous variables include: Changes in consumer tastes, Technological innovations, Government actions, Weather; according to Beinhocker.
, these two could drive the growth rate. His markets for labor and capital is the sum total nonhuman assets that can be owned and exchanged on some market according to Piketty. Capital includes: real property, financial capital and professional capital. It is not immutable instead depending on the state of the society within which it exists. It can be owned by governments (public capital) and private individuals (private capital). then kept everything in a Pareto optimal equilibrium. Solow's model supported Smith's assertion that only improvements in productivity is the efficiency with which an agent's selected strategy converts the inputs to an action into the resulting outputs. It is a complex capability of agents. It will depend on the agent having: time, motivation, focus, appropriate skills; the coherence of the participating collaborators, and a beneficial environment including the contribution of: standardization of inputs and outputs, infrastructure and evolutionary amplifiers.
increase wealth. Capital must be used productively to do that.
Paul Romer doubted that technology was exogenous and developed endogenous growth theory. He concluded that knowledge about technology is an increasing returns, W. Brian Arthur's conception of how high tech products have positive economic feedback as they deploy. Classical products such as foods have negative returns to scale since they take increasing amounts of land, and distribution infrastructure to support getting them to market. High tech products typically become easier to produce or gain from network effects of being connected together overcoming the negative effects of scale.
phenomenon.

These economic ideas had melded into a major influence on public policy, business, and finance. But the foundations were very weak.

A Critique - Chaos & Cuban Cars

Beinhocker outlines the main criticisms of traditional economics. A multi-discipline group of scientists at the Santa Fe Institute concluded that traditional economics was a brilliantly developed framework, but:

It was a throwback, based on 100 year old equations and techniques that had been borrowed from physics text books by Walras & Jevons. An Institute scientist having recently visited Cuba likened the situation to the ancient Packards and DeSotos that were cleverly maintained but still vintage. Walras & Jevons leveraged developments in thermodynamics. But they borrowed them before

The second law requires that the Boltzmann entropy of a closed system increases.
had been defined!
Open systems were identified.
Complex adaptive systems were known.

There was extreme use of simplifying assumptions by economists which actually contradicted reality: perfect rationality. A point that Henri Poincare had made to Walras in 1901.

In 1953 Milton Friedman argued in The Methodology of Positive Economics, that unrealistic assumptions do not matter if the results of the theory are correct. Herbert Simon countered that scientific theories are not developed to make predictions but to explain things. The predictions must be tests of whether the explanations are correct.

Beinhocker's list of troubling assumptions that make the equilibrium mathematics work includes: Simplistic idea of

Carlo Rovelli resolves the paradox of time.
Rovelli initially explains that low level physics does not include time:

A present that is common throughout the universe does not exist
Events are only partially ordered. The present is localized
The difference between past and future is not foundational. It occurs because of state that through our blurring appears particular to us
Time passes at different speeds dependent on where we are and how fast we travel
Time's rhythms are due to the gravitational field
Our quantized physics shows neither space nor time, just processes transforming physical variables.
Fundamentally there is no time. The basic equations evolve together with events, not things

Then he explains how in a physical world without time its perception can emerge:

Our familiar time emerges

Our interaction with the world is partial, blurred, quantum indeterminate
The ignorance determines the existence of thermal time and entropy that quantifies our uncertainty
Directionality of time is real but perspectival. The entropy of the world in relation to us increases with our thermal time. The growth of entropy distinguishes past from future: resulting in traces and memories
Each human is a unified being because: we reflect the world, we formed an image of a unified entity by interacting with our kind, and because of the perspective of memory
The variable time: is one of the variables of the gravitational field. With our scale we don't register quantum fluctuations, making space-time appear determined. At our speed we don't perceive differences in time of different clocks, so we experience a single time: universal, uniform, ordered; which is helpful to our decisions

time, Interesting changes are exogenous are changes to the external inputs of a traditional equilibrium economic model. The model does not change these variables but takes them as inputs. Typical exogenous variables include: Changes in consumer tastes, Technological innovations, Government actions, Weather; according to Beinhocker.
, Positive returns, W. Brian Arthur's conception of how high tech products have positive economic feedback as they deploy. Classical products such as foods have negative returns to scale since they take increasing amounts of land, and distribution infrastructure to support getting them to market. High tech products typically become easier to produce or gain from network effects of being connected together overcoming the negative effects of scale.
are transient and can be ignored or don't exist, Smart people in very simple worlds: No transaction costs, products are all commodities, Companies are efficient, Consumers can always purchase insurance reduces volatility in standard of living by compensating for losses of income during periods of unemployment, for catastrophic losses from disaster, or death of a family income earner as described by Gordon. Insurance companies must set aside reserves to handle such claims. Britain initially required that insurance buyers also have an insurable interest. That is required in insurance markets to ensure buyers of insurance don't destroy their asset just to obtain the insurance. Health insurance is treated separately being unusual, since the subscriber is likely to know more about their state of health than the insurer is and the subscriber is more likely to purchase the health insurance when aware of their increased risk. This behavior collapses the risk pool by: forcing the insurer to increase the premiums, and encouraging healthy individuals to opt out of health insurance coverage.
, Decisions are always based on price, mostly by using an auction.

Beinhocker asks, how well does Milton Friedman's theory explain reality? Alan Kirman argues it fits the data poorly, focuses in the wrong area, with a misleading idea of equilibrium. It predicts poorly and explains only its self-contained models. Traditional equilibrium economics has failed to match the operations of the financial markets or the results of experimental economics. Markets are generally out of equilibrium & are designed to cope with that. Prices vary while microeconomics asserts there will be one price (once transaction costs are removed). There are no laws of supply and demand. Stock markets have to employ agents that smooth demand and supply. Stock prices do not follow a random walk. Walras & Jevons asserted the economy was an at-equilibrium closed system where as it is an open system. Beinhocker concludes that instead of fitting patches onto the equilibrium model, it should be replaced.

Complexity Economics

Big Picture - Sugar & Spice

Brookings Institution's Joshua Epstein & Robert Axtell built a computer model with the aim of growing an economy from scratch with simple agents in a simple landscape:

Their initial conditions were:

Sugarscape Island is a 50 by 50 grid, differentiated into mountains, valleys, fertile areas and desert areas.
People (agents) with a few basic abilities.
An environment with some natural resources - Initially just sugar. Each square on the island is allocated a different amount of sugar (0 - 4). They are distributed to create two sugar mountains in the northeast and southwest corners. Between the two are regions with no sugar. As sugar is eaten it grows back at a rate of one unit per turn.

The agents:

Were independent computer programs which take in information about the environment and then makes decisions about what actions to perform next. The actions are:

Look for sugar
Move - north south east or west.
Eat sugar

Include details specific to them describing their ability. The specific values are randomly distributed around the population of agents:

Vision (How far it can see: 1 - 6 squares)
Metabolism (How much sugar it burns each round: 1 - 4 units)
How old they will get before naturally die
What sex they are.

Followed rules:

Agents can look ahead as far as its vision will allow in each of the directions of movement.
Agents can determine which unoccupied square in its vision has the most sugar.
Agents will move to that square and eat the sugar.
Agents are given metabolic credit for eating sugar and debits for metabolizing. It can build up a surplus for use in future turns.
Agents with no energy credits left are removed from the game.
Agents otherwise live until a predetermined age.

Genetic algorithm

Agents of child bearing age, and with enough sugar saved up can reproduce with an agent of the opposite sex in an adjacent square.
Children are given half of details of each of their parent agents.
Children are given half the wealth of each of their parent agents.
Children are born next to their parents in an empty square.

Initial game begins without operation of the genetic algorithm, with 250 agents randomly dropped on the Sugarscape. After initial chaos, order appears with agents discovering the Sugar Mountains and coalescing there. The distributed population stabilized around the carrying capacity of the Sugarscape.
Initial setup resulted in the rich getting richer based on proximate access to the Sugar Mountains and agent capabilities. The distribution of wealth followed a Pareto power law driven by chance decisions interacting with the dynamics of the game. Small differences based on luck or bad position can lead to major differences in final wealth.
Subsequently the genetic algorithm was enabled. Three things happened:

Least fit members of the population died off while the most fit had more and more offspring. Over time average vision and metabolic efficiency increased. Wealth increased.
The altered birth-death dynamics introduced population swings. Feast and famine occurred in repeated cycles.
The gap between rich and poor widened further. The rich get richer and the poor get poorer.

Epstein & Axtell extended the model world further:

Added a second commodity: spice. Any square could be growing both sugar and spice. Spice was also concentrated into two mountains in the northwest and southeast corners of Sugarscape.
Altered the agents' metabolism to require both commodities to survive. Again the individual attributes varied and were manipulated by the genetic algorithm.
Agents rules were extended to allow them to trade. If agents encounter others in adjacent squares they offer to trade. They are programmed to barter

When the trading enhanced game was run the agents overall became richer, as classical economics is the study of trade between humans. Traditional Economics is based on an equilibrium model of the economic system. Traditional Economics includes: microeconomics, and macroeconomics. Marx developed an alternative static approach. Limitations of the equilibrium model have resulted in the development of: Keynes's dynamic General Theory of Employment Interest & Money, and Complexity Economics. Since trading depends on human behavior, economics has developed behavioral models including: behavioral economics.
predicts. Trade:

Allowed two neighbors that were near death, one starving from sugar, the other from spice, to trade and both survive. Trade expands the carrying capacity of the landscape.
Clustered geographically.
Helps the rich get richer.

Requirements for both commodities generated successful movement dynamics associated with heavily trafficked trading routes with agents moving between the spice and sugar mountains.

Epstein and Axtell found the genetic operations on agent bartering developed typical demand and supply curves.
There was no settling at equilibrium. And there is no random noise in the model.
Agents trade when they can, based on proximate conditions and never find a global optimum.
Pareto optimality allocates resources measurably so that each change must make at least one person better off and make no one worse off.
is never reached because of separation of agents in space and time. Auctions, so loved by classical economics, did not occur because the setup time was so high.

Adding borrowing and lending capabilities to the agents transformed the situation. Agents would borrow, from rich neighbors, when this allowed them to have children. This resulted in emergent capabilities:

A complex hierarchic capital is the sum total nonhuman assets that can be owned and exchanged on some market according to Piketty. Capital includes: real property, financial capital and professional capital. It is not immutable instead depending on the state of the society within which it exists. It can be owned by governments (public capital) and private individuals (private capital). market emerged. Tracing relations between borrowers and lenders it was observed that:
Some agents became simultaneously borrowers and lenders (banks).
Certain really rich agents took on a wholesale role, lending to the banks. This chain could grow quite deep with analogs of institutional investors, investment banks, merchant banks and retail banks.

Beinhocker suggests Sugarscape illustrates a new approach to economics with different: dynamics, agents, networks, emergence, and evolution; from traditional economics.

Dynamics - The Delight of Disequilibrium

Beinhocker uses an economics context to review what CAS dynamic phenomena: booms, busts; mean. Dynamic systems are:

Represented by pools (stocks of: people, money, consumers' confidence;) with flows between them. The interconnections can support positive and negative feedback loops which can include time delays. Long time delays can make it very difficult to control a complex flow.
Often nonlinear. Beinhocker explains how the dynamics of a nonlinear flow can make it sensitive to:

Initial conditions - where he illustrates a flow B (t+1) = rB(t) - rB(t)**2 where a rate r of

1.5 results in a fixed-point attractor equivalent to the equilibrium assumed by classical economics. But altering the rate to
3.3 generates the regular oscillations of a periodic limit cycle. An increased rate of
3.5 generates a more complex quasi-periodic limit cycle. And a rate of
4.0 generates a deterministic condition called chaos: which is non-random, will never repeat, and is bounded in where its values will reach. Chaotic systems can't be solved analytically, but they can be modeled with computers.

History.

Together these two features make nonlinear dynamic systems difficult to predict.
Beinhocker notes the economy is complex: nonlinear, dynamic; but probably not chaotic. With more than 6.4 billion agents participating, forcasting is difficult except over the very short term. He notes Sterman's hypothesis that the irregular periodicity of different markets (commodity cycles) could be due to time delays in buffer stock updates and flows, price adjustments and demand shifts. People find this type of scenario hard to manage. Sterman concluded the system must be changed instead: Reduce the time delays in the system (make capacity less chunky), get more forward visibility, increase transparency of the capacity in the whole system (including under construction).

Agents - Mind Games

Beinhocker notes that the

CAS agents in economies are mostly humans. So economics must have a model of human minds that provides a good map in that it reflects the regularities in human behavior. It must do better than traditional economics with its Vulcan like assumptions justified as normative models of how humans should behave. Beinhocker uses the findings of behavioral economics as his foundation. Beinhocker's regularities include:

Fairness
Errors: Framing biases matter, Representation from small biased samples, Availability of data drives decisions, Risk and probabilities cause problems, Utilize proximate explanations, People decide based on irrational budget allocations.
Computability constraints limit rationality
Many economic problems have no fixed-point attractor solution. People try to identify patterns and then use them ignoring the times when the strategies fail.
Minds as computers describes the aggregate ideas of: Alan Turing, Alan Newell, Herbert Simon, Marvin Minsky, Hilary Putnam & Jerry Fodor; that beliefs and desires are information, bound through sense organ triggered associations with neuronal or other symbolic representations that once triggered give rise to other symbols and muscular actions generating behaviors. For Steven Pinker the theory allows behavior to be explained by beliefs and desires and makes the beliefs and desires part of the physical universe.

Evolved by the cognitive-niche is Tooby & DeVore's theory that reflects a flexible competitive strategy, described by Steven Pinker, which leverages the power and flexibility of intelligence to defeat the capabilities of genetically evolved specialists focused on specific niches. into a system of organs of computation. Not perfectly rational but powerful inductive listeners and story tellers, building models networked together by metaphor and analogy. To do this we perform pattern recognition and pattern completion.
But not performing computations in the deductive way Von Neumann, John was a brilliant Hungarian mathematician who published the earliest paper specifying architecture for digital computing. It ensured this computing architecture was not patentable. The architecture has a central processing unit (CPU), random access storage addressable by the CPU and a sequencer. The architecture encourages a serial software architecture that matches the logic of the sequencer and processing operations on program and data. Von Neumann, his history, computing architecture and some alternative architecture are reviewed by Melanie Mitchell.
developed for digital computing.

John Holland argued that induction can be defined algorithmically:

Goal state can be compared with the current state.
Condition-action rules can link the current state to actions to perform to get to the goal state.
Feedback & learning based on models that track which rules helped with achieving a goal and which didn't.
Rules self-organize into hierarchies based on the regularities present in the environment. This enables analogy making.
Holland, Brian Arthur, Blake LeBaron, Richard Palmer, and Paul Taylor, applied this inductive architecture in the Santa Fe Institute Artificial Stock Market.

The program is analogous to Sugerscape but the genetic algorithm is additionally applied to the strategies about how to trade in the 'minds' of the agents. It has
A single stock paying a random dividend is traded on the market.
A hundred trading agents buy and sell the stock inducing a price for the stock.
The agents' goal is to make as much money as possible. To do this each agent must decide when to buy and sell the stocks.
The agents have access to a stock model:

Historical price patterns for the stock
Historical dividend payouts
Risk free interest rate.

The condition-action rules were setup as schematic structures to map patterns in the market to the agent's expectation of the value of the stock.

These rule of thumb strategies were a mixture of: fundamental, trends or a mixture of the two.

The agents were provided with a learning model that allocated a fitness score to each strategy based on current conditions. But the values allocated were adjusted based on historic success of the strategies.
The genetic algorithm was applied at random points to the agents' strategies, removing the poorest 20% and transforming the high performers by recombination and mutation.
They then ran the program with each agent only having one and the same rule. The result was similar to the predictions of traditional economics:

Little trading volume, settling near to the predicted equilibrium price based on the fundamental value of the stock. But when they

Ran the program with 100 rules per agent, with learning and the genetic algorithm applied:

Trading volume went up, volatility climbed, the stock price included bubbles & crashes, over time. The market would become quiescent and then storm repeatedly. The performance of the agents varied: 'Warren Buffett's emerged while other agents went bankrupt is a legal status for an entity that cannot repay its creditor's loans. It holds creditor lawsuits in abeyance while the restructuring process proceeds to allow the entity to continue operations. It also has legal tools for forcing holdout creditors to accept repayments that are lower than the bond sale initially promised.
. These results are much more in-line with real stock markets. The stock prices were associated with the strategies of the agents rather than the fundamentals underlying the stock.

Beinhocker sees these results as in line with real human behavior. And he argues, as cognitive science progresses and modeling technology improves, our understanding of how behavior drives the economy will improve too.

Networks - Oh What a Tangled Web We Weave

Beinhocker notes that networks shape complex adaptive systems. And they can contribute positive returns, W. Brian Arthur's conception of how high tech products have positive economic feedback as they deploy. Classical products such as foods have negative returns to scale since they take increasing amounts of land, and distribution infrastructure to support getting them to market. High tech products typically become easier to produce or gain from network effects of being connected together overcoming the negative effects of scale.
that drive the system due to

This page discusses the effect of the network on the agents participating in a complex adaptive system (CAS). Small world and scale free networks are considered.

network effects. Stuart Kauffman concluded that Erdos & Renyi's random-graph theory explains why, as it allows a tipping point when the network shifts from sparsly connected to densely connected.

Beinhocker adds that our social networks are a mix of interconnected regular and random structures which allows the small world effect. Beinhocker notes it is the random friends that allow the lattice of social connections to bridge to other lattices. These random bridges support the six degrees connectivity of the small world. Hence, large organizations should deliberately move a small number of people across functions and businesses to enable this effect.

Beinhocker notes that Boolean networks, while influential, are simply characterized:

Number of nodes in the network,

The growth of a boolean network allows the number of potential novel states to expand exponentially. Economic strategies can leverage these effects. So Beinhocker asks: why do Silicon Valley's Davids regularly beat the big, corporate Goliaths? He suggests it depends on:

How much every node is connected to every other node,

Complexity Catastrophes is a dramatic breakdown in the operation of a CAS that results in general failure. Dorner in the logic of failure, sees the Chernobyl nuclear disaster as illustrative: typical human strategies were incorrectly applied by experienced operators, because they were overconfident and incorrectly modeled the current and immediate future state of the reactor. Beinhocker asserts positive effects generated in a large inter-connected network induce negative effects at other points in the network. Booch argues that increasing system complexity can overwhelm human designers, inducing catastrophe in software development. He recommends adopting object oriented hierarchy and modularity to limit complexity. But many CAS networks include huge number of agents, responding to internal and external signals, and effectively executing evolved, distributed schematic plans. Eventual loss of control, as in the case of cancers, is notable and highlights the effective agency of the more regular situation. Human developed systems suffer from complexity catastrophe. Democratic processes slowly search for representatives who will solve problems for the citizens, but Diamond in Collapse explains that democracy has struggled to cope with the tragedy of the commons. Cliodynamic cycles operate over multiple lifetimes leaving humans prone to fall into the traps that caught their grandparents. Evolved amplifiers support bubbles incenting dangerous deregulation, and encouraging broad participation, even though the rules ensure additional wealth accumulates to the legislative elite and aristocracy, who safely ignore moral hazard. Parasites undermine the detection of problems. RSS sees catastrophe enabled by a lack of rigorous schematic planning within most developed human systems.
- which he asserts are positive effects developed in a large highly inter-connected network inducing negative effects elsewhere in that network. Meetings in a big organization explode in number. Interdependencies are causing a complexity catastrophe, by inducing conflicting constraints, slow decision making and bureaucratic gridlock.
Beinhocker notes that while hierarchy is assumed to undermine adaptability, it actually allows a boolean network to grow large without suffering from diseconomies of scale. Beinhocker asserts that biological systems include many hierarchies because of this.

Bias indicates how the outputs of a Boolean network node differs from an input stream of half 1s and half 0s. It the two have a similar mix then the node is unbiased. If the output has more 1s than 0s the node is biased towards 1s. A biased node is more regular. Beinhocker argues this additional predictability allows these nodes to be more higly connected without inducing complexity catastrophes.
in the rules governing the behavior of the nodes.

Derrida and Weisbuch found that bias altered the point at which non-hierarchic networks suffer a complexity catastrophe is a dramatic breakdown in the operation of a CAS that results in general failure. Dorner in the logic of failure, sees the Chernobyl nuclear disaster as illustrative: typical human strategies were incorrectly applied by experienced operators, because they were overconfident and incorrectly modeled the current and immediate future state of the reactor. Beinhocker asserts positive effects generated in a large inter-connected network induce negative effects at other points in the network. Booch argues that increasing system complexity can overwhelm human designers, inducing catastrophe in software development. He recommends adopting object oriented hierarchy and modularity to limit complexity. But many CAS networks include huge number of agents, responding to internal and external signals, and effectively executing evolved, distributed schematic plans. Eventual loss of control, as in the case of cancers, is notable and highlights the effective agency of the more regular situation. Human developed systems suffer from complexity catastrophe. Democratic processes slowly search for representatives who will solve problems for the citizens, but Diamond in Collapse explains that democracy has struggled to cope with the tragedy of the commons. Cliodynamic cycles operate over multiple lifetimes leaving humans prone to fall into the traps that caught their grandparents. Evolved amplifiers support bubbles incenting dangerous deregulation, and encouraging broad participation, even though the rules ensure additional wealth accumulates to the legislative elite and aristocracy, who safely ignore moral hazard. Parasites undermine the detection of problems. RSS sees catastrophe enabled by a lack of rigorous schematic planning within most developed human systems.
. The higher the bias the more densely connected the network nodes could be before catastrophe occurs.

Beinhocker argues that when boolean networks include hierarchy and bias, the number of connections that can be supported before catastrophe occurs is between six and eight which Beihnocker notes is seen in human groups that needed to scale but could not cope with the diseconomies of complexity.

Emergence - The Puzzle of Patterns

Beinhocker notes economics has tracked a number of patterns: Depressions, Recessions, Inflation, Long-run growth in wealth per person, Distribution of wealth; suggesting they reflect causes that are deep in the workings of economies. Economists have modeled time series data: Business cycles; but they have not been able to use the patterns to predict future events accurately. And macroeconomics is the top-down view that starts with questions such as why there is unemployment and then drills down to find an answer, according to Beinhocker.
has not been able to meet up with microeconomics is a bottom-up view of the economy. It starts with individual decision makers and then builds up to markets and economies, explains Beinhocker. to build a unified theoretical framework. So Beinhocker compares how patterns are modeled by microeconomics, macroeconomics and complexity economics:

Microeconomics and business cycles - these exogenous shocks are imported into the microeconomic model by Fynn Kydland and Edward Prescott's work. The equilibrium model then propagates the shocks and the models outputs are then studied. But Beinhocker dismisses the approach because it cannot generate the patterns seen in the real world data from random input data. One can add the patterns to the input data but then microeconomics does not attempt to explain them. Such shocks include: Political events, Changes in technology;
Macroeconomics models of patterns - accepts the patterns and attempts to explain them. Beinhocker notes that after Keynes observed the great depression, he abandoned the equilibrium model for a dynamic framework in his General Theory of Employment, Interest and Money. He argued that a positive loop had driven demand down as the situation became worse after the First World War into a trap, away from the expected equilibrium. His solution was for governments to spend their way out of the trap. The solution was adopted by governments but remained controversial in macroeconomics. Chicago's Milton Friedman suggested this spending would not lead to long-term growth but would generate inflation. During the 1970s the US economy's low growth and high inflation aligned with Freidman's predictions. A mathematically brilliant model by Chicago's Robert Lucas indicated that government intervention was going to be a problem. But Lucas's model, for which he was awarded an economics Nobel Prize, had to assume consumers were totally rational and perfectly informed! Berkeley's George Akerlof highlighted these flaws in an alternative model that showed Keynesian spending could be beneficial, but time delays in the dynamics were significant. Akerlof's model integrated with the work of Edmund Phelps, Oliver Blanchard, and Gregory Mankiw, became New Keynesian economics which was leveraged on Wall Street and in Government. New Keynesian economics does not abandon the equilibrium model.
Complexity economics models of patterns - Beinhocker looks at three CAS patterns that are emergent signatures of such systems, including economies:

Oscillations: Economic cycles, Commodity cycles; are seen to have persisted through history. The exponential breeding of prey and the interacting growth of predators results in an oscillating expansion and reduction of the populations effectively modeled by Lotka & Volterra. Beinhocker notes that a simple economic network including a producer, distributors, wholesaler, retailer and a set of demand cards to model a consumer, interconnected by flows of product, and demand, with buffer pools between the different agents in the product delivery system, and time delays; induces supply oscillations within the system, after a single change in demand. Beinhocker notes that human agents behaviors, including our inability to cope with time delays induces the oscillations, even when the network of agents has enough information to do much better. The agents use anchor and adjust is a behavior broadly adopted by human agents to inductively model the operation of a CAS network. Using patterns of past flow rates, the agents select a model that seems to match and anchor to that. When the actual operation diverges from the anchor model, the agents continue to leverage the model, but make adjustments to account for the differences. If a characteristic of the network, such as increased demand, has changed the model and adjustments will generate more divergence. In a network with buffer pools and time delays, the anchor and adjust strategy ensures both overshooting and undershooting.
behavior rather than deducing the future requirements from the data about the inventory and time delays. Beinhocker notes that the adoption of computers and just-in-time inventory management has reduced these supply chain oscillations.
Punctuated Equilibrium is Steven Jay Gould and Niles Eldridge's proposal about how evolution occurs. They suggested that most of the time 'nothing happens' and then there are intermittent rapid lurches. The idea is analogous to Schumpeter's waves of creative destruction. Complex adaptive systems will operate this way driven by the underlying slow mutations of the germ-line schemata and the action of infrastructure and evolved amplifiers.
: Just as biological evolution likely includes periods of dramatic change followed by more stability, Beinhocker argues that replacement of Keystone phenotypes are highly connected to other agents competing for resources and niches in the CAS. If they are removed from the CAS there are major impacts that could include mass extinctions. Jain & Krishna assume a Punctuated Equilibrium view of evolution, in three phases: Random - where mutations are slowly accruing, Growth - when some innovation induces a wave of growth, Organized - where changes are consolidated; with keystone phenotypes emerging at the highly connected nodes in the reorganized CAS.
technologies causes a wave of creative destruction in an economy. He notes that:

No technology is developed in isolation.
Technologies are inherently modular.

Power laws: CAS follow power laws, as Benoit Mandelbrot is a probability distribution which occurs in real world economics, physics and earth science situations. The tail is fat because more extreme events occur than a random distribution about a mean would predict. There is clustering of events over time typical of a punctuated equilibrium. The statistics describing the data changes over time. The mathematics of this distribution is far harder to leverage in models than the thin-tailed normal distribution. So the normal distribution is sometimes inappropriately applied in fat-tail situations.
and Vilfredo Pareto noted. Economists had typically assumed that stock markets and economies followed normal distributions of events. In reality financial markets are far more volatile than traditional economics suggests. Santa Fe Institute's Doyne Farmer reasons the volatility is due to the two types of order used on the exchanges: market order and limit order; with the limit orders being buffered in a book (pool) until they execute or expire. When a market order matches a limit condition it will initiate the execution of the limit order and may reveal the next limit sell order that is priced far higher. The shift in price was just an artifact of the pattern of orders that had been stored in the limit order book over time. Farmer found this circumstance is: quite usual, can occur over long periods, and is not random.

Beinhocker concludes complex emergent phenomena likely have three roots: Behaviors of the agents, Institutional structure of the CAS, Exogenous shocks; while traditional economics focuses on the exogenous shocks.

Evolution - It's a Jungle Out There

Beinhocker asserts that evolution is a:

He argues it is responsible for the order, complexity & diversity of the natural world and the economic world. He uses Tufts University philosopher Daniel Dennett and Oxford biologist

Richard Dawkin's explores how nature has created implementations of designs, without any need for planning or design, through the accumulation of small advantageous changes.

Richard Dawkins arguments as a foundation. He uses Karl Sims's Block Creatures as an example of applying the genetic algorithm to artificial life to find good tricks for survival.

Beinhocker explains Dennett's argument that evolution algorithmically recursively applies a recipe to a substrate-neutral rule driven process to generate outputs of increasing value. The algorithm is defined by the logic that it uses to transform information. He notes that evolution has to search through the design space of available configurations to identify those that increase value. Noting that the space is typically vast, evolution has to reliably and quickly find good designs.

Beinhocker describes the model of evolution's algorithm to help him review the search mechanism:

It builds and maintains a database of schematic mappings from a label to a design.
It builds and uses a schema reader to instantiate a design, creating an 'interactor is evolutionary philosopher David Hull's term for the schematically specified, instantiated aggregated agent which can interact with the proximate environment and is subject to selection pressures. Dawkins's equivalent term is 'vehicle'.
' instance. It can do this because the schema reader's design is specified in the schema database.
A fitness function must be applied to the interactor instances & their schematic designs. Beinhocker argues it is the environment's constraints that form the fitness function.

Beinhocker notes that this algorithm must be made emergent to operate without support from designers. He uses biological evolution's emergence mechanism as a model, where there is a self-copying molecule. And the fitness function is supplied by the physical and chemical constraints and the competition of co-evolving organisms.

Beinhocker concludes the setup for evolution boils down to information processing. In the case of life this was dependent on thermodynamics and random chance. For the economy it was dependent on spoken language and then writing.

Beinhocker argues that design spaces with most small changes in schemata leading to small or no changes in fitness, but some small changes having large effects will be roughly correlated with the shape of the biological fitness landscape. And this will mean evolution will be the ideal algorithm for searching fitness landscapes. Without any ability to look ahead, the risk that a search agent will descend and be killed by natural selection, and the shifting nature of the fitness landscape, one effective search strategy is the adaptive walk is a fitness landscape search strategy that picks its direction of search randomly, and then selects for ascending steps, and backtracks if it starts to descend. It gets trapped in local maxima and must be augmented with other strategies, such as a short random jump.
, when it is augmented with a different strategy such as short random jump is a fitness landscape search strategy that picks its direction of search randomly, and jumps a random distance in that direction. It is risky since it can jump into danger where the searcher may die.
performed by large numbers of replicated 'interactors'. Genetic operators such as crossing over and mutation will spread the interactors out, but with small mutations they will still be relatively close together. Since the jump length can also be changed evolution can both explore and exploit its current situation. And Beinhocker notes if the environment suddenly changes and puts the majority of interactors at risk, the outliers will allow evolution to continue. Holland concluded that evolution comes very close to achieving the optimal balance between exploitation and exploration.

Dennett notes three attributes of roughly correlated fitness landscape topography:

Good tricks - are very attractive moves because they result in interactor features that support fitness: eyes are major sensors in primates, based on opsins deployed in the retina & especially fovea, signalling the visual system: Superior colliculi, Thalamus (LGN), Primary visual cortex; and indirectly the amygdala. They also signal [social] emotional state to other people. And they have implicit censorious power with pictures of eyes encouraging people within their view to act more honorably. Eyes are poor scanners and use a saccade to present detail slowly to the fovea. The eye's optical structures and retina are supported by RPE. Eyes do not connect to the brain through the brain stem and so still operate in locked-in syndrome. Evo-devo shows eyes have deep homology. High pressure within the eye can result in glaucoma. Genetic inheritance can result in retinoblastoma. Age is associated with AMD.
;
Forced moves - there is currently only one choice of move for the interactor, due to dangers or constraints.
Path dependence - results from the use of adaptive walk with short random jumps. Where you are matters. So we are all prisoners of our history.

Evolution results in continuous adaptation, reflecting the fitness function and its shifts. Knowledge, reflected in the schemata, about the fitness function and environment accumulates. Novelty emerges from the parallel search discovering and instantiating the designs. Successful schemata control more resources.

How Evolution Creates Wealth

Design Spaces - From Games to Economics

Beinhocker recalls the application of genetic algorithms to search for winning strategies for the Prisoner's Dilemma is a game theoretical scenario explored by mathematicians and evolutionary biologists. Two prisoners are to be interrogated separately. They will benefit if they cooperate with one another - serving one year each. But if just one defects they will go free while the other will lose serving three years. If they both defect they will both lose serving two years each. If the game is played once it is best to defect. But if the game is iterative, cooperation can be beneficial using a Tit for Tat strategy. Bootstrapping cooperation can be induced:

When a small founder population first becomes isolated and kin-selection increases and then the group connect to the main population. The group can then use cooperation to out compete the other members.
Through green-beard signals, driving cooperation and forcing non green-beards to shift to cooperation to compete.

. Economists are particularly interested in games like Prisoner's Dilemma where cooperation between the parties is non-zero-sum -- cooperation results in benefits to both participants. Holland had proposed the GAs use to Axelrod, who built an initial model and published his results in 1987. Beinhocker then introduces a recent contribution from Goteborg University's Kristian Lindgren who integrates two games: the Prisoner's Dilemma is a game theoretical scenario explored by mathematicians and evolutionary biologists. Two prisoners are to be interrogated separately. They will benefit if they cooperate with one another - serving one year each. But if just one defects they will go free while the other will lose serving three years. If they both defect they will both lose serving two years each. If the game is played once it is best to defect. But if the game is iterative, cooperation can be beneficial using a Tit for Tat strategy. Bootstrapping cooperation can be induced:

When a small founder population first becomes isolated and kin-selection increases and then the group connect to the main population. The group can then use cooperation to out compete the other members.
Through green-beard signals, driving cooperation and forcing non green-beards to shift to cooperation to compete.

and the Game of Life, is a cellular automaton defined by John Conway. Cells of the automata are either on or off. An infinite two-dimensional orthogonal grid of cells allows each cell to interact with its eight immediate neighbors. The interactions follow set rules: Any on cell with less than two neighbors which are on turns off. Any on cell with two or three neighbors remains on. Any on cell with more than three on neighbors turns off. Any off cell with exactly three on neighbors turns on. A human watching the display of the cells executing the game of life rules can see 'gliders' move about the grid.
. In the composite:

Lindgren altered the Game of Life's finite state automata (agents) so they turn on or off depending on the outcome of the Prisoner's Dilemma game they play with their nearest neighbors. He allowed each agent to use a different strategy. The cell the agent occupied was colored based on the strategy the agent was using. The scores for each of the games an agent played with its immediate neighbors were summed and averaged. The agent with the highest average score at the end of a round was the winner. That agent would take over (deploy its strategy to) the square at the center of its neighborhood.
To decide on a strategy for the Prisoner's Dilemma games each agent looked back in a history of moves and counter moves, and used the pattern to set an expectation of what a successful move would be (cooperate or defect). When the agents can only review one prior move, they only have four potential strategies: Always Defect, Always Cooperate,
Tit for Tat
is a winning iterative Prisoner's Dilemma strategy. Michigan political scientist Robert Axelrod programmed various proposed strategies into a program performing the Prisoner's Dilemma. Anatol Rapoport suggested the Tit for Tat strategy where the prisoner starts by cooperating but defects whenever the other prisoner has defected in the prior round. It is a simple strategy with little cognitive load. W. D. Hamilton worked with Axelrod adding real-world possibilities to the game situations. These included:
- Signal errors where the prisoner's intent was different to the signal's interpretation: They acted to cooperate but appeared to request defection. This undermines the Tit for Tat strategy and forces the establishment of trust.
- Cost of adding detectors to monitor for signal errors and sham emotions.
, & anti-Tit for Tat.
The agent's schemata were mutated with: Point mutations, Duplications - which have the effect of expanding the agent's memory, allowing the agent to remember and review more move chains, Deletions - shrinking the memory size and reducing the number of potential strategies.
The action recommended by the winning strategy (cooperate or defect) was randomly inverted.
The world was a 128 * 128 board, with an agent on each square, allocated a random strategy.
Once the game was started and the genetic algorithm was enabled, the:

Strategies started mutating,
High scoring strategies began replicating into neighboring squares.
Initial strategies:
Tit for Tat
is a winning iterative Prisoner's Dilemma strategy. Michigan political scientist Robert Axelrod programmed various proposed strategies into a program performing the Prisoner's Dilemma. Anatol Rapoport suggested the Tit for Tat strategy where the prisoner starts by cooperating but defects whenever the other prisoner has defected in the prior round. It is a simple strategy with little cognitive load. W. D. Hamilton worked with Axelrod adding real-world possibilities to the game situations. These included:
- Signal errors where the prisoner's intent was different to the signal's interpretation: They acted to cooperate but appeared to request defection. This undermines the Tit for Tat strategy and forces the establishment of trust.
- Cost of adding detectors to monitor for signal errors and sham emotions.
& Always Cooperate; would support one another building high scores in partnership while
Always Defect developed into large collections. Some of these collections surrounded islands of Always Cooperates, protected by a barrier ring of Tit for Tats. The islands weren't stable and could collapse.
Subsequently innovations occurred, reflecting the action of duplication mutations. While many mutations were selected against, the addition of more memory provided agents with significant strategic opportunities: Simpleton emerged during his modified Prisoner's Dilemma game. If the two players selected the same move in the previous round Simpleton cooperates. Otherwise it defects. , Vengeful emerged during his modified Prisoner's Dilemma game. Begins by cooperating, but when an opponent defects it will defect twice. , & Fair emerged during his modified Prisoner's Dilemma game. It started out cooperating, but once the opponent defects, fair defects as well until the opponent resumes cooperating. If Fair's signal is mistaken, due to induced errors, it will cooperate until the opponent starts cooperating again. Fair is an advantage in noisy environments. .

Beinhocker notes there was:

No absolute winning strategy. The set of agents that are currently 'alive' represent successful strategies.
A pattern of iterations of Punctuated Equilibrium is Steven Jay Gould and Niles Eldridge's proposal about how evolution occurs. They suggested that most of the time 'nothing happens' and then there are intermittent rapid lurches. The idea is analogous to Schumpeter's waves of creative destruction. Complex adaptive systems will operate this way driven by the underlying slow mutations of the germ-line schemata and the action of infrastructure and evolved amplifiers.
. Beinhocker concludes this was because each strategy was highly dependent on the others in its environment at that instant. And the sensitivity to small changes limits the capability to use equations to predict what will occur. He asserts the operation of the game is too complex to forecast its precise behavior in advance. Instead contingent statements about different values of key variables can be made. And these models can be run repeatedly with the same startup parameters but different random shocks to assess the robustness of the outcomes.

Having inspected Lindgren's game exploring the strategy space of Prisoner's Dilemma is a game theoretical scenario explored by mathematicians and evolutionary biologists. Two prisoners are to be interrogated separately. They will benefit if they cooperate with one another - serving one year each. But if just one defects they will go free while the other will lose serving three years. If they both defect they will both lose serving two years each. If the game is played once it is best to defect. But if the game is iterative, cooperation can be beneficial using a Tit for Tat strategy. Bootstrapping cooperation can be induced:

When a small founder population first becomes isolated and kin-selection increases and then the group connect to the main population. The group can then use cooperation to out compete the other members.
Through green-beard signals, driving cooperation and forcing non green-beards to shift to cooperation to compete.

, Beinhocker asks: can evolutionary search be used to search the design space of the global economy?

Beinhocker describes a design space of all business plans. He notes that with the matching management team and business plan from the overall space a business can be evolved as the plan's strategies specify. Economic evolution consequently searches for fit designs in this design space. The process is analogous to biological evolution:

Variation occurs as people develop new business strategies and organizational designs.
Selection occurs at multiple points in the economy, causing survival of some business plans.
Replication occurs as successful designs are rewarded with more resources and are copied.
But Beinhocker asserts economic evolution occurs from the coevolution of three design spaces: Physical Technologies are defined by Beinhocker as methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal or goals. The effects of nuclear and genetic physical technologies are already challenging. Beinhocker adds artificial intelligence and nanotechnology as emerging physical technologies that support access to huge new niches and introduce additional challenges.
, Social Technologies are defined by Beinhocker as methods and designs for organizing people in pursuit of a goal or goals. He views the three most significant social technologies as: markets, science, and democracy. A war example is Fuller & Liddell Hart's theory of high-speed tank warfare, subsequently instantiated by Guderian as Blitzkrieg.
and Business Plans. This separation is needed, he explains, because each space has a unique fitness function reflecting the differing history of exaptation, initially termed preadaptation refers to the coopting of some function for a new use. .

Physical Technology - From Stone Tools to Spacecraft

Beinhocker sees the integration of artifact creation and teaching children about how to do it as:

Uniquely human
The birth of Physical Technology are defined by Beinhocker as methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal or goals. The effects of nuclear and genetic physical technologies are already challenging. Beinhocker adds artificial intelligence and nanotechnology as emerging physical technologies that support access to huge new niches and introduce additional challenges.
. Stone tools and fire: matter & energy; were effectively leveraged over a million years ago.

He argues that economies are dependent on Physical Technologies - that allow products & services to be traded and Social Technologies are defined by Beinhocker as methods and designs for organizing people in pursuit of a goal or goals. He views the three most significant social technologies as: markets, science, and democracy. A war example is Fuller & Liddell Hart's theory of high-speed tank warfare, subsequently instantiated by Guderian as Blitzkrieg.
- that catalyze, an infrastructure amplifier. cooperation between non-relatives to allow the trading. Beinhocker presumes the initial tool making bootstrapped via deduction. Successful experiments then produced inductive rules of thumb. These socially transmitted technology recipes then supported Physical Technology evolution.

Beinhocker sees signs of speciation of related technologies: Airplanes, hot-air balloons, dirigibles, hang gliders; judged a phylum of flying. And technologies go extinct: Canal networks that are no longer in service. He tests if technology evolution is just a misused metaphor, requiring that technology evolution be mapped onto a general model of evolution already described. He concludes the job of technology evolution is to find the workable physical technologies in the vast overall physical technology design space. And economic evolution must then find the even-smaller subset of physical technologies that have economic value.

A physical technology reader must be able to transform the schemata in this design space into a real-world instantiation. And the schemata must be transmittable. Hence, Beinhocker argues language is a catalyst of physical technology. He asserts physical technologies are auto-catalytic. And Beinhocker argues they, and other schemata, are: modular, building blocks; in character. The addition of a new invention, reflecting the realization of additional schemata, will add access to further areas of design space.

Beinhocker, asks if the design space of physical technologies are defined by Beinhocker as methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal or goals. The effects of nuclear and genetic physical technologies are already challenging. Beinhocker adds artificial intelligence and nanotechnology as emerging physical technologies that support access to huge new niches and introduce additional challenges.
is rough-correlated. He notes that since it was created by emergent creatures using evolutionary search, it will reflect that character. Beinhocker asserts that it is deductive tinkering that provides the evolutionary search with variation. He argues that fitness for purpose provides the selection process. Replication of 'fit' physical technologies occurs through copying of successful tool building by observation and deductive tinkering. The presence of technology S-Curves also demands a rough-correlated design space. A random fitness landscape would imply a random effect of investment in a technology.

Beinhocker argues Christensen's disruptive innovations require a significant cascade of changes to shift from one physical technology to another. Beinhocker suggests it is very difficult for companies to make a long jump from one technology area to another, especially when they are astride a local peak. But many innovators searching the proximate design space eventually results in someone finding an attractive route up to a higher fitness peak.

Around 1750, the accessible Physical Technology space are defined by Beinhocker as methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal or goals. The effects of nuclear and genetic physical technologies are already challenging. Beinhocker adds artificial intelligence and nanotechnology as emerging physical technologies that support access to huge new niches and introduce additional challenges.
grew exponentially, triggered by the scientific revolution. This revolution began in the 1500s based on rediscovered classical knowledge. By the seventeenth century Bacon's scientific method and Galileo's highlighting of experiments supported the work of Newton, Boyle and others. Science hugely increased the success rate of deductive insights. And it allowed us to program our own search algorithm.

Social Technology - From Hunter-gatherers to Multinationals

Beinhocker argues that Social Technology are defined by Beinhocker as methods and designs for organizing people in pursuit of a goal or goals. He views the three most significant social technologies as: markets, science, and democracy. A war example is Fuller & Liddell Hart's theory of high-speed tank warfare, subsequently instantiated by Guderian as Blitzkrieg.
is the most significant reason why one country is richer than another. He refers to Institute of International Economics' Easterly & Minnesota's Levine study which found the key determinants were: Rule of Law, Existence of property rights, Banking infrastructure, Economic transparency; rather than: Availability of natural resources, Government competency, and Physical Technology are defined by Beinhocker as methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal or goals. The effects of nuclear and genetic physical technologies are already challenging. Beinhocker adds artificial intelligence and nanotechnology as emerging physical technologies that support access to huge new niches and introduce additional challenges.
sophistication.

Further Beinhocker sees Social Technology are defined by Beinhocker as methods and designs for organizing people in pursuit of a goal or goals. He views the three most significant social technologies as: markets, science, and democracy. A war example is Fuller & Liddell Hart's theory of high-speed tank warfare, subsequently instantiated by Guderian as Blitzkrieg.
impacting industries and companies' performance. The rapid improvement of productivity is the efficiency with which an agent's selected strategy converts the inputs to an action into the resulting outputs. It is a complex capability of agents. It will depend on the agent having: time, motivation, focus, appropriate skills; the coherence of the participating collaborators, and a beneficial environment including the contribution of: standardization of inputs and outputs, infrastructure and evolutionary amplifiers.
of the US is the United States of America. in the late 1990s was found by McKinsey Global Institute to be due mainly to innovations is the economic realization of invention and combinatorial exaptation. While highly innovative, monopolies: AT&T, IBM; usually have limited economic reach, constraining productivity. This explains the use of regulation, or even its threat, that can check their power and drive the creations across the economy.
in Social Technologies: Wal-Mart's logistical system and large store format implemented during the 1980s were 40% more productive than its competitors, forcing the competition to respond. That retail shift accounted for 25% of the US productivity improvement. Social Technology innovation races in five other sectors accounted for most of the other 75%. The prior deployment of networked computing Physical Technology was an enabler but not a primary factor.

Social Technology, like Physical Technology has a design space. Its schemata are memetic, and have three major attributes:

Self-feeding & Exponentially unfolding
Modular, and building-block like
Fitness landscape is rough-correlated. So evolution is a good search mechanism.

Beinhocker asserts that people develop new Social Technologies through deductive tinkering. He notes that for Social Technologies there is a higher ratio of tinkering than with Physical Technologies.

He also notes that the landscapes of Physical Technologies and Social Technologies interact.

The force driving the innovation for Social Technology is the added value of non-zero-sum games. Beinhocker notes that biological evolution leverages this type of cooperation a lot: Dogs hunting in packs, Termites collectively building mounds, Fish swimming in schools, most primates living in groups.

Beinhocker argues that Social Technology evolutionary search requires:

The possibility of non-zero-sum payoffs - which must come from: Differences among people's needs & desires, Positive returns to scale, Division of labor, High benefit and low cost of sharing spoilable large resources,
Facilities to allocate the payoffs so that all participants will be incented to start cooperating - Beinhocker reviews
Nash's bargaining problem
is how two bargainers come to agreement. John Nash concluded how they split up the gains from exchange depends on:
- How each values the benefits of the deal. He suggests all bargainers assume the others are looking for the best deal.
- What the alternatives are. Trade occurs at the Nash equilibrium when no one has any incentive to change position, given the actions of the others.
, noting that in a single round
Prisoner's Dilemma
is a game theoretical scenario explored by mathematicians and evolutionary biologists. Two prisoners are to be interrogated separately. They will benefit if they cooperate with one another - serving one year each. But if just one defects they will go free while the other will lose serving three years. If they both defect they will both lose serving two years each. If the game is played once it is best to defect. But if the game is iterative, cooperation can be beneficial using a Tit for Tat strategy. Bootstrapping cooperation can be induced:
- When a small founder population first becomes isolated and kin-selection increases and then the group connect to the main population. The group can then use cooperation to out compete the other members.
- Through green-beard signals, driving cooperation and forcing non green-beards to shift to cooperation to compete.
the Nash equilibrium would be where both players defect, unless a powerful incentive was applied to encourage initial cooperation, and defection was managed.
Management of defection - Beinhocker notes that coping with cheating requires the development of sophisticated strategies. Results from the
Ultimatum Game
is an economic game involving two players: One makes an offer about how to split a pot of money. If the offer is rejected neither party gets any money. The other player can accept or reject the offer. Rationality implies that any offer should be accepted by the recipient. Instead recipients are keenly aware of being unfairly treated. The longer the amygdala responds to the offer the more likely it is to be rejected. The rejection is mentally costly and must be encouraged by a dopaminergic reward, fueled by the amygdala and insula. When the offer is rejected the first player feels dissed, subordinated - especially if the result is shared with others, undermining status & reputation. Sapolsky notes that:
- People with damaged amygdalae are unusually generous because the BLA normally injects learned implicit distrust and vigilance into social decision making.
- People given testosterone before the game become more generous. Sapolsky notes the effect demands fancy neuroendocrine wiring.
- People from small-scale, non-Western cultures were less trusting and punished more. Joseph Henrich found three variables predicted how the play executed: Market integration, Community size, Religion; where large communities need ways to make strangers trustworthy. Communities that trade are also more likely to act fairly and punish unfairness. Sapolsky asserts that market interactions represent an impoverishment of human reciprocity with the total transaction having to be judged and occur in an instant. Small-scale cultures are more practiced at the nuanced judgements about their long term neighbors.
- Chimps can be trained to play the game. Max Planck Institute's Michael Tomasello found no evidence of chimp requirements for fairness. But De Waal & Brosnan found chimps will be fair but only if they see a downside in being unfair. Primates seem to reflect the same hypocritical strategies underneath any reciprocal altruism that humans display.
show people reject unfairness. Evolution has found strategies that allow us to cooperate to capture the riches of non-zero-sum games, but it also equipped us to be sensitive to cheating, expectations of fairness, and a willingness to punish those that cross the line. Beinhocker asserts that as people have deductively tinkered their way across the landscape in search of fit Social Technologies, humankind has evolved increasingly complex and sophisticated social structures for addressing these three issues.

Beinhocker asserts that man climbed a social structure ladder: Family related unit, Cooperative hunting band of kin, Farming community - economies of scale allowing: Collective development of buildings, Division of labor to create artifacts, & Trading across communities. And he suggests the social hierarchy naturally transformed into a socioeconomic status is a publically accepted, signal that one possesses assets: wealth, beauty, talent, expertise, access & trust of powerful people; to be able to help others.
hierarchy of the Big Man Society providing the typical stability humans seek. Beinhocker notes how human hierarchy should enable the network amplifier of information access & transfer.

Inter-community trading requires trust and distrust are evolved responses to sham emotions. During a friendship where no sham emotions have been detected trust will build up.
. Beinhocker notes the grouping of us and them. And he suggests the rule of law allows this division to be overcome, amplifying trade.

Beinhocker notes language development, including writing, also provides access to a vastly expanded area of the design spaces: mail, telephones, faxes & email.

And Beinhocker argues that once large numbers of people could form cooperative networks, and had the means to communicate and record large amounts of data, human organizations could generate emergent networked computation.

The expansion of the accessible high points of the Social Technologies are defined by Beinhocker as methods and designs for organizing people in pursuit of a goal or goals. He views the three most significant social technologies as: markets, science, and democracy. A war example is Fuller & Liddell Hart's theory of high-speed tank warfare, subsequently instantiated by Guderian as Blitzkrieg.
design space supported and leveraged the expansion of the accessible high points of the Physical Technologies are defined by Beinhocker as methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal or goals. The effects of nuclear and genetic physical technologies are already challenging. Beinhocker adds artificial intelligence and nanotechnology as emerging physical technologies that support access to huge new niches and introduce additional challenges.
design space.

Economic Evolution - From Big Men to Markets

Beinhocker reflects that the three design spaces: Business plans, Physical Technologies are defined by Beinhocker as methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal or goals. The effects of nuclear and genetic physical technologies are already challenging. Beinhocker adds artificial intelligence and nanotechnology as emerging physical technologies that support access to huge new niches and introduce additional challenges.
& Social Technologies are defined by Beinhocker as methods and designs for organizing people in pursuit of a goal or goals. He views the three most significant social technologies as: markets, science, and democracy. A war example is Fuller & Liddell Hart's theory of high-speed tank warfare, subsequently instantiated by Guderian as Blitzkrieg.
; have provided support for most requirements of his test for evolution: A design space for economic evolution, A schema for the business plan designs, Building blocks that underlie the designs (Physical are defined by Beinhocker as methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal or goals. The effects of nuclear and genetic physical technologies are already challenging. Beinhocker adds artificial intelligence and nanotechnology as emerging physical technologies that support access to huge new niches and introduce additional challenges.
and Social Technologies are defined by Beinhocker as methods and designs for organizing people in pursuit of a goal or goals. He views the three most significant social technologies as: markets, science, and democracy. A war example is Fuller & Liddell Hart's theory of high-speed tank warfare, subsequently instantiated by Guderian as Blitzkrieg.
), A schema reader, the management team, that turns Business Plans into reality, An environment, the marketplace, where evolutionary competition occurs; but he sees the need for two additional requirements:

Define the interactors is evolutionary philosopher David Hull's term for the schematically specified, instantiated aggregated agent which can interact with the proximate environment and is subject to selection pressures. Dawkins's equivalent term is 'vehicle'.
in economic evolution - businesses, which Beinhocker asserts are a person, or an organized group of people, who transforms matter, energy, and information from one state into another with the goal of making a profit. These may exist within larger firms which Beinhocker defines as one or more businesses controlled in common by a person or group of people.
Identify the units of selection. Beinhocker argues that the business plan must contain the unit of selection. To define what it is in the business plan that gets selected Beinhocker reviews what makes a competitive success of a business. But he notes it must be whatever is helping the business be successful at that competitive point in time. That leads him to suggest it is a 'module' of the business plan which is a component that has provided in the past, or could provide in the future, a basis for differential selection between businesses in a competitive environment. Beinhocker asserts that the glue that binds together the Physical Technologies and Social Technologies that make up the modules of the business plan is strategy which Beinhocker argues is a hypothesis that combines Physical Technologies are defined by Beinhocker as methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal or goals. The effects of nuclear and genetic physical technologies are already challenging. Beinhocker adds artificial intelligence and nanotechnology as emerging physical technologies that support access to huge new niches and introduce additional challenges.
and Social Technologies are defined by Beinhocker as methods and designs for organizing people in pursuit of a goal or goals. He views the three most significant social technologies as: markets, science, and democracy. A war example is Fuller & Liddell Hart's theory of high-speed tank warfare, subsequently instantiated by Guderian as Blitzkrieg.
in a way it assumes will win against the competition. A Business Plan is where strategies allow Physical Technologies and Social Technologies to meet, in modules, as the plans are made real as operational businesses.

Beinhocker sees business execution as trying a lot of stuff and seeing what works. He sees this as more deductive-tinkering by entrepreneurs and managers. And they must be able to execute short (mostly), medium and long jumps through the business plan design space to stop evolution getting stuck on local peaks.

And he argues that selection of the business is then performed, initially by Big Men, with the aristocratic hierarchies of feudal Europe controlling over 80% of economic output until about 300 years ago, and subsequently by markets. Beinhocker explains that a major achievement of traditional economics was to show that the fitness function that markets attempt to satisfy is the overall welfare of the people participating in them. A market economy is defined by markets selecting Business Plans, because to become a Big Man is to have ones Business Plans preferred by the market to the others. Corporate hierarchies make visible decisions selecting Business Plans and allocating resources to their choices, but above these hierarchies is the market where the hierarchies compete with one another. Beinhocker sees the decisions of managers in the hierarchy as transforming one Business Plan into the next. Then the winning options will be executed in the market place where competition will decide the winner.

Replication should be the measure of evolved success. Here Beinhocker avoids the problem of the amorphous shape of his interactors by comparing the total resources: money, people, plant and equipment, brand, technical knowledge, customer relationships; amassed by the business with the business plan modules it executes. He concludes evolved success is how its resources grow over

Carlo Rovelli resolves the paradox of time.
Rovelli initially explains that low level physics does not include time:

A present that is common throughout the universe does not exist
Events are only partially ordered. The present is localized
The difference between past and future is not foundational. It occurs because of state that through our blurring appears particular to us
Time passes at different speeds dependent on where we are and how fast we travel
Time's rhythms are due to the gravitational field
Our quantized physics shows neither space nor time, just processes transforming physical variables.
Fundamentally there is no time. The basic equations evolve together with events, not things

Then he explains how in a physical world without time its perception can emerge:

Our familiar time emerges

Our interaction with the world is partial, blurred, quantum indeterminate
The ignorance determines the existence of thermal time and entropy that quantifies our uncertainty
Directionality of time is real but perspectival. The entropy of the world in relation to us increases with our thermal time. The growth of entropy distinguishes past from future: resulting in traces and memories
Each human is a unified being because: we reflect the world, we formed an image of a unified entity by interacting with our kind, and because of the perspective of memory
The variable time: is one of the variables of the gravitational field. With our scale we don't register quantum fluctuations, making space-time appear determined. At our speed we don't perceive differences in time of different clocks, so we experience a single time: universal, uniform, ordered; which is helpful to our decisions

time. In part this growth will occur inside the corporate hierarchies as favored selections are copied into other interactors inside the firm. Beinhocker sees market success being similarly copied and resourced by competitors adding to the replication of the module.

Beinhocker notes that traditional economics justifications for the value of markets are based on the assumptions of equilibrium. Beinhocker replaces these assumptions with:

Markets are evolutionary search mechanisms.
Markets provide incentives for the deductive-tinkering process of differentiation.
Markets provide the fitness function and selection process that support the broad needs of the population.
Markets support shifting resources towards competitive modules, amplifying the module's influence. In summary markets are effective at innovation in disequilibrium. And they are relatively efficient at local allocation of resources.

Beinhocker argues that around 1750 a set of innovations in Social Technologies altered the speed of economic evolution:

The scientific revolution after 1500 transformed the ability to search through the design space of Physical Technologies are defined by Beinhocker as methods and designs for transforming matter, energy, and information from one state into another in pursuit of a goal or goals. The effects of nuclear and genetic physical technologies are already challenging. Beinhocker adds artificial intelligence and nanotechnology as emerging physical technologies that support access to huge new niches and introduce additional challenges.
.
Two centuries of Social Technologies are defined by Beinhocker as methods and designs for organizing people in pursuit of a goal or goals. He views the three most significant social technologies as: markets, science, and democracy. A war example is Fuller & Liddell Hart's theory of high-speed tank warfare, subsequently instantiated by Guderian as Blitzkrieg.
evolution resulted in the rise of organized markets. Beinhocker suggests the two key events were the:

Emergence of parliamentary democracy in England: Constitutional monarchy, Parliament controlled the budget, Bank of England was established to manage the currency, Petition of Rights of 1628 and Habeas Corpus of 1679; and the
American Revolution: Britain's cheap resourcing of the colonies' infrastructure and its battles with other European great powers allowed a populist culture to develop in the colonies and economic freedom to generate a
GDP
is:
- Gross domestic product which measures the total of goods and services produced in a given year within the borders of a given country (output) according to Piketty. Gordon argues to include products produced in the home & market-purchased goods and services, following Becker's theory of time use. Gordon stresses innovation is the ultimate source of all growth in output per worker-hour. GDP growth per person is equal to the growth in labor productivity + growth in hours worked per person. GDP has many problems. Gordon concludes that between 1870 and 1940 all available measures GDP is hugely understated because:
- Guanine-di-phosphate is a nucleotide base.
that was 40% of Britain's in 1775.

New Definition of Wealth - Fit Order

Beinhocker explains that Darwin, Teilhard de Chardin & Georgescu-Roegen observed two types of human evolution: genetic & cultural is how we do and think about things, transmitted by non-genetic means as defined by Frans de Waal. CAS theory views cultures as operating via memetic schemata evolved by memetic operators to support a cultural superorganism. Evolutionary psychology asserts that human culture reflects adaptations generated while hunting and gathering. Dehaene views culture as essentially human, shaped by exaptations and reading, transmitted with support of the neuronal workspace and stabilized by neuronal recycling. Sapolsky argues that parents must show children how to transform their genetically derived capabilities into a culturally effective toolset. He is interested in the broad differences across cultures of: Life expectancy, GDP, Death in childbirth, Violence, Chronic bullying, Gender equality, Happiness, Response to cheating, Individualist or collectivist, Enforcing honor, Approach to hierarchy; illustrating how different a person's life will be depending on the culture where they are raised. Culture:

Is deployed during pregnancy & childhood, with parental mediation. Nutrients, immune messages and hormones all affect the prenatal brain. Hormones: Testosterone with anti-Mullerian hormone masculinizes the brain by entering target cells and after conversion to estrogen binding to intracellular estrogen receptors; have organizational effects producing lifelong changes. Parenting style typically produces adults who adopt the same approach. And mothering style can alter gene regulation in the fetus in ways that transfer epigenetically to future generations! PMS symptoms vary by culture.
Is also significantly transmitted to children by their peers during play. So parents try to control their children's peer group.
Is transmitted to children by their neighborhoods, tribes, nations etc.
Influences the parenting style that is considered appropriate.
Can transform dominance into honor. There are ecological correlates of adopting honor cultures. Parents in honor cultures are typically authoritarian.
Is strongly adapted across a meta-ethnic frontier according to Turchin.
Across Europe was shaped by the Carolingian empire.
Can provide varying levels of support for innovation.
Produces consciousness according to Dennet.

; with Georgescu-Roegen associating evolution & thermodynamic entropy requires that the Boltzmann entropy of a closed system increases.
. He argued that economic processes (1) irreversibly transform high (2) entropy to low entropy with some of the increased order being useful to and able to be captured by human agents [for achieving their subjective goals. Goals that may help them survive and reproduce by reflecting (3) strategies to capture the cognitive niche is Tooby & DeVore's theory that reflects a flexible competitive strategy, described by Steven Pinker, which leverages the power and flexibility of intelligence to defeat the capabilities of genetically evolved specialists focused on specific niches. ], and criticized traditional economics for ignoring this.

Beinhocker notes that our current environments differ from the African savanna is the environment where hunter-gatherers primarily evolved. Its grassland supported large herbivores that could be hunted. Clumps of trees & rocks supported places to hide from large carnivores. Streams and paths add to the signals enabling orientation.
, creating opportunities to exploit the mismatch. But more generally he sees necessary economic coevolution of businesses plans and humanity's current environmental niches.

He argues wealth is a form of order: Patterns of economic order, in the form of products and services, which compete with each other to be needed, desired and craved by consumers. The winners support the evolved amplification of the business plans that defined their development. The preferences of consumers and the plans then coevolve, defining contingent wealth - fit order.

Beinhocker relates this

CAS representation of wealth to the ideas of traditional economic value where: scarce factors of production met individual preferences through the mechanism of markets. Value was whatever two people were willing to trade for. The equivalent CAS model has:

Supplies of low entropy having some intrinsic value.
Human preferences determining the attraction of products and services, stimulating demand.
Markets allowing businesses plans to match scarce order with individual preferences.

Beinhocker adds that money is a Social Technology are defined by Beinhocker as methods and designs for organizing people in pursuit of a goal or goals. He views the three most significant social technologies as: markets, science, and democracy. A war example is Fuller & Liddell Hart's theory of high-speed tank warfare, subsequently instantiated by Guderian as Blitzkrieg.
that enables score keeping during the interactions.

Beinhocker argues economic wealth and biological wealth are thermodynamically similar phenomena:

He concludes wealth is schematically useful information and its equivalent, schematically useful energy, to paraphrase Beinhocker. It is useful because an agent has schematic strategies that can utilize the information or energy to extend or leverage control of the cognitive niche. is knowledge and its origin is evolution. He explains his conclusion: wealth being fit order corresponds to knowledge, which he equates to useful information. Evolution is a knowledge-creation machine or learning algorithm.

What it Means for Business and Society

Strategy - Racing the Red Queen

Beinhocker concludes that complexity makes the economy too complex, too nonlinear, too dynamic, and too sensitive to the twists and turns of chance to be amenable to prediction beyond the shortest of terms. But:

CEOs are expected to determine which is the best business strategy
Investors expect to identify the highest returning investment approach
Political leaders are expected to select the best policy

Instead he argues complexity allows us to design institutions and societies to evolve effectively. By understanding evolution he suggests we can harness its power to serve human purposes.

Beinhocker notes that Chandler's view was strategy is forward looking, and used a plan for associating resources with actions that fulfill desired long-term goals. The plan leverages the development of a number of scenarios and seeks attractive positions within those. Harvard's Porter argued that by reducing competition and increasing market power through competitive advantage companies could capture profits. And Harvard's Ghemawat noted that competitive advantage's strategic moves are risky, is an assessment of the likelihood of an independent problem occurring. It can be assigned an accurate probability since it is independent of other variables in the system. As such it is different from uncertainty.
because they are costly to reverse. This irreversibility is Georgescu-Roegen condition (1).

Classically business strategy makes two assumptions:

One can make confident predictions about what strategies will be successful in the future
One can make commitments that will result in sustainable competitive advantage; but Beinhocker asserts both assumptions are false.

Beinhocker argues frozen accidents, dynamic, nonlinear flows amplify small events into significant outcomes. Such uncertainty is when a factor is hard to measure because it is dependent on many interconnected agents and may be affected by infrastructure and evolved amplifiers. This is different from Risk. is associated with punctuated equilibrium is Steven Jay Gould and Niles Eldridge's proposal about how evolution occurs. They suggested that most of the time 'nothing happens' and then there are intermittent rapid lurches. The idea is analogous to Schumpeter's waves of creative destruction. Complex adaptive systems will operate this way driven by the underlying slow mutations of the germ-line schemata and the action of infrastructure and evolved amplifiers.
and power laws is a probability distribution which occurs in real world economics, physics and earth science situations. The tail is fat because more extreme events occur than a random distribution about a mean would predict. There is clustering of events over time typical of a punctuated equilibrium. The statistics describing the data changes over time. The mathematics of this distribution is far harder to leverage in models than the thin-tailed normal distribution. So the normal distribution is sometimes inappropriately applied in fat-tail situations.
. This leaves competitive advantage as rare and relatively short-lived. Punctuated equilibrium and power laws leave human pattern-recognizers flummoxed.

There are no safe, stable industries. Schumpeter's gales of creative destruction are seen everywhere. Beinhocker notes that this is also seen in biology where species are locked in a never-ending co-evolutionary arms race with no opportunity to win. Sustainable competitive advantage does not exist.

Beinhocker concludes that an excellent company must be one which can string together a series of temporary advantages over

Carlo Rovelli resolves the paradox of time.
Rovelli initially explains that low level physics does not include time:

A present that is common throughout the universe does not exist
Events are only partially ordered. The present is localized
The difference between past and future is not foundational. It occurs because of state that through our blurring appears particular to us
Time passes at different speeds dependent on where we are and how fast we travel
Time's rhythms are due to the gravitational field
Our quantized physics shows neither space nor time, just processes transforming physical variables.
Fundamentally there is no time. The basic equations evolve together with events, not things

Then he explains how in a physical world without time its perception can emerge:

Our familiar time emerges

Our interaction with the world is partial, blurred, quantum indeterminate
The ignorance determines the existence of thermal time and entropy that quantifies our uncertainty
Directionality of time is real but perspectival. The entropy of the world in relation to us increases with our thermal time. The growth of entropy distinguishes past from future: resulting in traces and memories
Each human is a unified being because: we reflect the world, we formed an image of a unified entity by interacting with our kind, and because of the perspective of memory
The variable time: is one of the variables of the gravitational field. With our scale we don't register quantum fluctuations, making space-time appear determined. At our speed we don't perceive differences in time of different clocks, so we experience a single time: universal, uniform, ordered; which is helpful to our decisions

time. Johnson & Johnson & Merck are judged examples of such companies.

Hannan and Freeman's studies on the organizational ecology of markets led them to conclude that individual companies do not innovate much. They found that change was mainly due to companies entering and exiting the market. Beinhocker adds that the process of differentiating, selecting, and amplifying Business Plans works better at the level of the market than inside the walls of most companies.

Beinhocker argues it is possible to use strategy advantageously within a company by:

Beinhocker discusses Bill Gates approach when MS-DOS replacement products were being developed in 1987. He suggests Gates setup a portfolio of strategic options - six competitive business plans within Microsoft that he felt reflected the competition going on in the market:

Invest in MS-DOS to leverage its huge customer base. DOS had become more powerful over time.
IBM was a seen as a huge threat. It was aiming to recapture control of the OS-market. Gates got them to agree to partner on PS/2 and OS/2 with Microsoft acting as the developer!
Microsoft negotiated with AT&T and other Unix companies to participate in Unix development. Unix workstations remained niche.
Unix on PCs was led by Santa Cruz Operation (SCO). Microsoft purchased a major part of SCO.
Microsoft continued to invest in applications for DOS, Apple Macintosh, Windows and OS/2.
Invested in Windows.

Beinhocker argues this Gates story demonstrates a number of general lessons:

Management needs to create a context for strategy. Constructing a portfolio of experiments requires a collective understanding of the current situation and shared aspirations among the management team.

A planning exercise allows the management team to build a common frame of reference: shared understanding of the facts, a language for talking to each other; and ensures they communicate.
A planning process focused on learning (instead of creating plans and making decisions):

Structuring in-depth discussion and debate
Fuel with facts and analysis - including all participants gaining a shared understanding of the fact base.
Other forums must be designated for decision making. They must be linked to but separate from the learning process.

Management needs a process for differentiating Business Plans that results in a portfolio of diverse plans.

Beinhocker rejects the approach of chopping down the branches of the strategy decision tree, eliminating options, making choices and commitments. Instead he argues for
An evolutionary approach - making lots of small bets:

Creating choices - with an evolving portfolio of strategic experiments that provide the management team with choices.
Keeping options open - the inherent tension between search and execution must be managed. Execution requires focus. Execution's feedback loops are fast. But experimentation must be tolerated. And strategic feedback must be expected to take years. Redundancy must be accepted as a cost of diversity.
Making the tree of possibilities as bushy as possible - The plans must stretch over the
This web page reviews opportunities to find and capture new niches based on studying fitness landscapes using complex adaptive system (CAS) theory.

fitness landscape in an attempt to support the search process. Beinhocker argues this is done by considering:

Risk, is an assessment of the likelihood of an independent problem occurring. It can be assigned an accurate probability since it is independent of other variables in the system. As such it is different from uncertainty.
- but he explains he really means:

All the uncertainty is when a factor is hard to measure because it is dependent on many interconnected agents and may be affected by infrastructure and evolved amplifiers. This is different from Risk. that affects the experiments
How irriversible the commitments are

Relatedness - some of the plans may require skills & experience outside of the current company portfolio. Bill Gates MS-DOS replacement portfolio stretches across the fitness landscape.

He notes that people don't believe they will have the resource base to build a Gates like portfolio. Beinhocker counters that in the past most companies have ended up with just one plan because of a faulty mindset.

The organization needs to create a selection environment that mirrors the environment in the market even as it changes over
Carlo Rovelli resolves the paradox of time.
Rovelli initially explains that low level physics does not include time:
- A present that is common throughout the universe does not exist
- Events are only partially ordered. The present is localized
- The difference between past and future is not foundational. It occurs because of state that through our blurring appears particular to us
- Time passes at different speeds dependent on where we are and how fast we travel
- Time's rhythms are due to the gravitational field
- Our quantized physics shows neither space nor time, just processes transforming physical variables.
- Fundamentally there is no time. The basic equations evolve together with events, not things
Then he explains how in a physical world without time its perception can emerge:
- Our familiar time emerges
time
. Beinhocker notes that organizations will distort the market signals. He argues that more detailed information limits opinions and politicing. But he notes that key selection decisions happen outside of the top leadership's awareness. So aspirational goals must be devised that reflect the impact of the external environment, allow innovation, create action and are supported with alligned incentives.
Processes need to be established that enable the amplification of successful business plans and the elimination of unsuccessful ones. But Beinhocker notes it is a mistake to apply the same performance metrics to all businesses and strategic experiments. Beinhocker supports development of a custom balanced scorecard. And the front line businesses must have enough slack resource that they can adapt and respond to opportunities that appear. How do you rapidly spot those? Beinhocker notes venture capitalists is venture capital, venture companies invest in startups with intangable assets
use their portfolios pragmatically to learn about the future. They maintain lots of small low risk bets and then support proven success with additional resources while removing funding streams from market failures.

Organization - A Society of Minds

Beinhocker argues that for companies to sustain themselves through the inevitable downturns they must have a strong culture is how we do and think about things, transmitted by non-genetic means as defined by Frans de Waal. CAS theory views cultures as operating via memetic schemata evolved by memetic operators to support a cultural superorganism. Evolutionary psychology asserts that human culture reflects adaptations generated while hunting and gathering. Dehaene views culture as essentially human, shaped by exaptations and reading, transmitted with support of the neuronal workspace and stabilized by neuronal recycling. Sapolsky argues that parents must show children how to transform their genetically derived capabilities into a culturally effective toolset. He is interested in the broad differences across cultures of: Life expectancy, GDP, Death in childbirth, Violence, Chronic bullying, Gender equality, Happiness, Response to cheating, Individualist or collectivist, Enforcing honor, Approach to hierarchy; illustrating how different a person's life will be depending on the culture where they are raised. Culture:

Is deployed during pregnancy & childhood, with parental mediation. Nutrients, immune messages and hormones all affect the prenatal brain. Hormones: Testosterone with anti-Mullerian hormone masculinizes the brain by entering target cells and after conversion to estrogen binding to intracellular estrogen receptors; have organizational effects producing lifelong changes. Parenting style typically produces adults who adopt the same approach. And mothering style can alter gene regulation in the fetus in ways that transfer epigenetically to future generations! PMS symptoms vary by culture.
Is also significantly transmitted to children by their peers during play. So parents try to control their children's peer group.
Is transmitted to children by their neighborhoods, tribes, nations etc.
Influences the parenting style that is considered appropriate.
Can transform dominance into honor. There are ecological correlates of adopting honor cultures. Parents in honor cultures are typically authoritarian.
Is strongly adapted across a meta-ethnic frontier according to Turchin.
Across Europe was shaped by the Carolingian empire.
Can provide varying levels of support for innovation.
Produces consciousness according to Dennet.

& values supported by an effective social architecture breaks down barriers to adaptability and allows organizations to obtain a better balance between near-term execution and long-term evolution. It is defined by Beinhocker as:

The behaviors of the individual people in the organization.
The structures and processes that align people and resources in pursuit of an organization's goals.
The culture that emerges from the interactions of people in the organization with each other and their environment.

.

He asserts that companies are organizations are goal directed, boundary-maintaining, and socially constructed systems of human activity, argues University of North Carolina sociologist Howard Aldrich.
. And organizations are:

This page introduces the complex adaptive system (CAS) theory frame. The theory is positioned relative to the natural sciences. It catalogs the laws and strategies which underpin the operation of systems that are based on the interaction of emergent agents.
John Holland's framework for representing complexity is outlined. Links to other key aspects of CAS theory discussed at the site are presented.

CAS networks of agents dynamically interacting.
The agents' rules of behavior and networks of interactions change in response to changes in the environment.
The agents' interactions produce emergent macro-level patterns of behavior.
The organization has a current state and a desired state. Actions are taken to close the gap between the two.
Most people are excluded from the boundary of the organization. People are screened before acceptance into an organization.
Organizations are open thermodynamic systems that enforce the boundary, with irreversible activities to lower the entropy inside. They consequently create wealth is schematically useful information and its equivalent, schematically useful energy, to paraphrase Beinhocker. It is useful because an agent has schematic strategies that can utilize the information or energy to extend or leverage control of the cognitive niche. .

So Beinhocker argues that firms are organizations that develop and execute business plans with the collective goal of making a profit. He notes Ronald Coase asked: why form organizations? in 'The Nature of the Firm.' Coase concluded it is a structure used when it minimizes transaction costs. Beinhocker adds that it can also reach areas of Business Plan design space that freelancers can't:

Incomplete contracts - because of complexity it is impossible to cover all possible contingencies in a contract. So freelancing is restricted to simple part of business plan space.
The holdup problem can occur - specific assets, that are costly and only useful in a specific situation, must be held by someone in the group of freelancers. If a freelance relationship unravels no one will want to be that person. Who ever does have the assets is in a weakened negotiating position relative to the others.
Cooperative structures can be developed and sustained, supporting long term transactions, even if particular agents change.
Organizations allow collective learning. They build structures that embed information that can be utilized by other cooperating agents. Beinhocker differentiates between:

Learning - acquisition of knowledge in pursuit of a goal. He asserts organizations are good at doing this.
This page introduces the complex adaptive system (CAS) theory frame. The theory is positioned relative to the natural sciences. It catalogs the laws and strategies which underpin the operation of systems that are based on the interaction of emergent agents.
John Holland's framework for representing complexity is outlined. Links to other key aspects of CAS theory discussed at the site are presented.

Adapting - changing in response to selection pressures from one's environment. He asserts organizations have trouble doing this.

Beinhocker applies evolution arguing a firm must:

Execute its current set of Business Plans to survive the challenges of today, and
Adapt those plans to survive the challenges of tomorrow.

Beinhocker asserts organizations find it easier to execute than adapt. Viewing them as CAS he looks at three levels at why organizations find it hard to adapt:

The individual agents find it hard to adapt based on their mental models (behavior). He argues:

People are overoptimistic.
People are loss averse
The way mental models are categorized and structured gets in the way of change. Beinhocker assumes that it is the extensive experience deployed into the models that limits the adaptability of adults. "The early emphasis is on exploring while we form our mental models and get feedback from the environment, but eventually we settle into a groove, and the emphasis shifts to exploiting the model we have developed," Beinhocker writes. And he argues that this stability supports organizations in stable environments but undermines adapting to Shumpeterian shifts. Still Beinhocker suggests organizations can leverage this knowledge by:

Having a variety of ages in the senior managment team
Embracing a non-hierarchic culture that is open to challenge and debate.
Have a range of experiences: different industries, backgrounds, international, entrepreneurial, corporate, nonbusiness.

The nature of evolutionary change favors rigid leadership aims to develop plans and strategies which ensure effective coordination to improve the common good of the in-group. John Adair developed a leadership methodology based on the three-circles model.
styles. Beinhocker's point is that if the environment reflects punctuated equilibrium is Steven Jay Gould and Niles Eldridge's proposal about how evolution occurs. They suggested that most of the time 'nothing happens' and then there are intermittent rapid lurches. The idea is analogous to Schumpeter's waves of creative destruction. Complex adaptive systems will operate this way driven by the underlying slow mutations of the germ-line schemata and the action of infrastructure and evolved amplifiers.
then most of the time being rigid will be a beneficial leadership style. And it will also benefit by building experience from deploying the strategy repeatedly. Only during the periods of dramatic change in the environment will more flexibility is needed.

The structure of organizations inhibit adaptation: hierarchies, complexity catastrophes is a dramatic breakdown in the operation of a CAS that results in general failure. Dorner in the logic of failure, sees the Chernobyl nuclear disaster as illustrative: typical human strategies were incorrectly applied by experienced operators, because they were overconfident and incorrectly modeled the current and immediate future state of the reactor. Beinhocker asserts positive effects generated in a large inter-connected network induce negative effects at other points in the network. Booch argues that increasing system complexity can overwhelm human designers, inducing catastrophe in software development. He recommends adopting object oriented hierarchy and modularity to limit complexity. But many CAS networks include huge number of agents, responding to internal and external signals, and effectively executing evolved, distributed schematic plans. Eventual loss of control, as in the case of cancers, is notable and highlights the effective agency of the more regular situation. Human developed systems suffer from complexity catastrophe. Democratic processes slowly search for representatives who will solve problems for the citizens, but Diamond in Collapse explains that democracy has struggled to cope with the tragedy of the commons. Cliodynamic cycles operate over multiple lifetimes leaving humans prone to fall into the traps that caught their grandparents. Evolved amplifiers support bubbles incenting dangerous deregulation, and encouraging broad participation, even though the rules ensure additional wealth accumulates to the legislative elite and aristocracy, who safely ignore moral hazard. Parasites undermine the detection of problems. RSS sees catastrophe enabled by a lack of rigorous schematic planning within most developed human systems.
, resource configuration; (structure)

Beinhocher references University of Michigan political scientist Scott Page's analysis which concluded structure matches the tasks being performed. He viewed tasks as having parallelizable aspects and sequential aspects. The more tasks that must be sequenced, the more hierarchy is required. This leads Beinhocker to see deep hierarchies as supporting complex execution strategies but inhibiting search processes that are best implemented by a series of small parallel teams. He notes the additional problem of effectively reintegrating the search teams into the hierarchic business units.
Beinhocker explains how Edith Penrose correlated specialized resource commitments and constraints on where an organization may search for opportunity. So to exploit potential opportunities the company will change its resource base. Business plans and resources must co-evolve. But there are path dependencies that act as barriers to these changes, as noted by Hamel & Prahalad. That leads Beinhocker to conclude that portfolios of strategic experiments are important because they support additional resource diversity.

Emergence must be enabled by corporate culture (
culture
is how we do and think about things, transmitted by non-genetic means as defined by Frans de Waal. CAS theory views cultures as operating via memetic schemata evolved by memetic operators to support a cultural superorganism. Evolutionary psychology asserts that human culture reflects adaptations generated while hunting and gathering. Dehaene views culture as essentially human, shaped by exaptations and reading, transmitted with support of the neuronal workspace and stabilized by neuronal recycling. Sapolsky argues that parents must show children how to transform their genetically derived capabilities into a culturally effective toolset. He is interested in the broad differences across cultures of: Life expectancy, GDP, Death in childbirth, Violence, Chronic bullying, Gender equality, Happiness, Response to cheating, Individualist or collectivist, Enforcing honor, Approach to hierarchy; illustrating how different a person's life will be depending on the culture where they are raised. Culture:
- Is deployed during pregnancy & childhood, with parental mediation. Nutrients, immune messages and hormones all affect the prenatal brain. Hormones: Testosterone with anti-Mullerian hormone masculinizes the brain by entering target cells and after conversion to estrogen binding to intracellular estrogen receptors; have organizational effects producing lifelong changes. Parenting style typically produces adults who adopt the same approach. And mothering style can alter gene regulation in the fetus in ways that transfer epigenetically to future generations! PMS symptoms vary by culture.
- Is also significantly transmitted to children by their peers during play. So parents try to control their children's peer group.
- Is transmitted to children by their neighborhoods, tribes, nations etc.
- Influences the parenting style that is considered appropriate.
- Can transform dominance into honor. There are ecological correlates of adopting honor cultures. Parents in honor cultures are typically authoritarian.
- Is strongly adapted across a meta-ethnic frontier according to Turchin.
- Across Europe was shaped by the Carolingian empire.
- Can provide varying levels of support for innovation.
- Produces consciousness according to Dennet.
)

Beinhocker defines culture as an emergent characteristic of a group of agents and is determined by the agents' rules of behavior (or norms) for acting in their social einvironment and for interacting with each other. Cultural rules are socially transmitted and learned.
Organizations then develop their own unique culture over time: rules of behavior about interacting within a specific organization. Beinhocker asserts there are traits and norms that are associated with high-performing and adaptive companies:

Performance orientation
Honesty
Meritocracy
Mutual trust
Reciprocity
Shared purpose
Nonhierarchical
Openness
Fact-based
Challenge - always in a race. But he notes it is hard to integrate them into the social fabric of a firm and get all the people to adopt them.

Beinhocker argues that with the high-performance norms in place, companies don't have to depend so much on hierarchy and processes, which makes it easier to be flexible and adapt. He notes that there are tensions among the 10 norms so they must be effectively managed, by senior leadership, to ensure they are all operating. An effective social architecture requires structure, process and culture setup to be consistent and mutually reinforcing. And the people are selected for fitting within the company's social architecture. Senior managers must consistently signal their expectations. Constant repetition makes them believed.

Beinhocker highlights Edith Penrose's conclusions regarding the fundamental constraints on firm size and growth:

Managing complexity
Knowledge. Beinhocker suggests we are limited by our innovation and knowledge-creating abilities. He notes Marvin Minsky's observation that intelligence is an emergent phenomena which Minsky terms "the society of mind." Beinhocker wonders if creating "societies of minds" through culture will free the minds of their people to be engines of wealth creation.

Finance - Ecosystems of Expectations

Traditional economics support for finance theory uses equilibrium based stock market operations. Black-Scholes can solve the contingent investment discount rate dilemma for pricing options. It establishes a tracking portfolio with the same payoffs as the option and dynamically tracks the portfolio as the stock price evolves, adjusting the value of the option. It is argued that the adjustment ensures the rate of return to a hedge position remains constant over time.
provides a mathematical instantiation. LTCM was Long-Term Capital Management, a hedge fund that used Black-Scholes quantitative models to trade in derivatives. The hedge fund's bets failed during the Asian and Russian debt crisis of 1998 and it had to be rescued by the Federal Reserve.
's failure provides us with a high profile repudiation of the theory: Robert Merton noted the day after the crash, "according to our models this just could not happen." Stock market bubbles do not exist according to traditional finance theory. The theories and equations are rapidly applied in the real world: investors, banks, corporate managers, & government policy makers; make decisions based on the predictions. Beinhocker notes that finances empirical testing of finance theory has not been kind!

In 1954 Paul Samuelson, adopted Louis Bachelier's 1900 Theory of Speculation, which asserted that stock prices perform a random walk over

Carlo Rovelli resolves the paradox of time.
Rovelli initially explains that low level physics does not include time:

A present that is common throughout the universe does not exist
Events are only partially ordered. The present is localized
The difference between past and future is not foundational. It occurs because of state that through our blurring appears particular to us
Time passes at different speeds dependent on where we are and how fast we travel
Time's rhythms are due to the gravitational field
Our quantized physics shows neither space nor time, just processes transforming physical variables.
Fundamentally there is no time. The basic equations evolve together with events, not things

Then he explains how in a physical world without time its perception can emerge:

Our familiar time emerges

Our interaction with the world is partial, blurred, quantum indeterminate
The ignorance determines the existence of thermal time and entropy that quantifies our uncertainty
Directionality of time is real but perspectival. The entropy of the world in relation to us increases with our thermal time. The growth of entropy distinguishes past from future: resulting in traces and memories
Each human is a unified being because: we reflect the world, we formed an image of a unified entity by interacting with our kind, and because of the perspective of memory
The variable time: is one of the variables of the gravitational field. With our scale we don't register quantum fluctuations, making space-time appear determined. At our speed we don't perceive differences in time of different clocks, so we experience a single time: universal, uniform, ordered; which is helpful to our decisions

time. Samuelson's conclusion was the cornerstone of the ideas of Traditional finance developed over the next 30 years by: Samuelson, Paul Cootner, Harry Markowitz, James Tobin, Franco Modigliani, Merton Miller, Fischer Black, Myron Scholes, Eugene Fama, William Sharpe, and Robert Merton. The framework was popularized by Princeton's Burton Malkiel, who published A Random Walk Down Wall Street, which became a fixture of MBA courses and deployed the models into the minds of a generation of traders and investors.

Beinhocker explains the efficiency of the market in digesting information, into expectations and then into a consensus price change is judged by traditional finance theory to cause prices to move in a random walk. The random walk occurs because, traditional economics assumes, the arrival of news occurs randomly. To account for economic growth over time economics argues the news has a slight positive bias: a random walk with drift. Because information digestion is efficient, it was assumed there is no useful information in past stock price movements. If there was the rational investors would translate it into price changes reflected in the current equilibrium position. Chicago's Eugene Fama noted in the efficient-markets hypothesis that rational investing and arbitrage means it is impossible to beat the market and generate higher returns than the market as a whole.

Beinhocker explains in this random walk model, investors who win: Berkshire Hathaway's Warren Buffett; are assumed to be digesting all the information effectively and driving the price. Those who loose did not bother to capture all the information available and act on it and so transferred their money to Buffett etc. Among the fully rational investors there should be no winners and losers. The only way one can stand out is to take on more risk, is an assessment of the likelihood of an independent problem occurring. It can be assigned an accurate probability since it is independent of other variables in the system. As such it is different from uncertainty.
, or be lucky during the instant that the sample was assessed.

There are three significant problems that mean a

CAS approach must replace the traditional economics infrastructure:

Real-world investors look nothing like the idealized investors of finance theory. They have biases, don't discount as predicted, use heuristics and suffer from framing problems. The price of cotton was tracked by economist Hendrik Houthakker. In 1960 his data was analyzed by Benoit Mandelbrot who showed it had a fat tail is a probability distribution which occurs in real world economics, physics and earth science situations. The tail is fat because more extreme events occur than a random distribution about a mean would predict. There is clustering of events over time typical of a punctuated equilibrium. The statistics describing the data changes over time. The mathematics of this distribution is far harder to leverage in models than the thin-tailed normal distribution. So the normal distribution is sometimes inappropriately applied in fat-tail situations.
. But Mandelbrot was an IBM mathematician and CAS theory was not developed yet. Economists continued to assume markets were random and in equilibrium.
Markets don't follow a random walk. Market data has considerable structure with all the signatures of a
This page introduces the complex adaptive system (CAS) theory frame. The theory is positioned relative to the natural sciences. It catalogs the laws and strategies which underpin the operation of systems that are based on the interaction of emergent agents.
John Holland's framework for representing complexity is outlined. Links to other key aspects of CAS theory discussed at the site are presented.

CAS. Lo & MacKinley noted two patterns that undermined a random walk:

Markets are not efficient, as predicted by traditional economics. Beinhocker argues that instead they are evolutionarily effective.

At the end of the cold-war, physicists, who had been working on military problems switched over to Wall Street finance. Doyne Farmer & Norman Packard took Mandelbrot's arguments and built a theory to explain them assuming an evolving ecosystem. They noted that market signals predicted future share prices and once identified, the signals remained for some time instead of being arbitraged away. And even as these signals were weakened by trading new one appeared. And the successful strategies generating the signals depended on the strategies of the other agents in the market.

Farmer built a simple model of a market where only three basic types of investor existed:

Value investors - who would buy & sell a stock based on fundamentals (earnings, growth, competitive position models),
Technical traders (who buy and sell based on past prices & trading volume models),
Liquidity traders (who sell when driven by a need to gain access to liquidity); along with a
Market maker - who reflected the details of how the market operates: buys and sells in a continuous auction.

Farmer could customize the model:

Initially he just deployed one fundamental trader and a market maker. But because of time delays the market did not match traditional finance theory. The time delay caused oscillations. The oscillations represented the rules being followed by the trader and maker and the delays.
Then he added a technical trader, who purchased when the price was going up and sold when it was going down, amplifying the oscillations. And if the technical trader was successful the agent would reinvest its gains adding to the size of the oscillations.
Subsequently Farmer set the fundamental value of the stock to be constant. He added seasonal traders who bought and sold alternately, creating an oscillating pattern. He added technical traders who used information on price trends in prior periods to decide: if price went down and then up then buy, if the price went down and then down again sell. Successful traders could keep the money and reinvest. While traditional finance theory suggests the technical traders will find the oscillating pattern and then arbitrage the seasonal trend out what Farmer observed was:

As the technical traders found the oscillation pattern they started to gain money. That allowed them to make bigger trades. They almost arbitraged away all the oscillations but then
The larger trades of the successful technical traders caused new volatility. The successful traders started to capture profits from each other and generated more wild oscillations. This mimicked the data Doyne Farmer had seen on his company's trading floor. Some technical traders were profitable.

The model explains why hedge funds is an investment fund that accepts investments from a limited number of accredited individual or institutional investors. Hedge funds are able to use investment methods that are not allowed for other types of fund.
can exist and be highly profitable using arbitrage and technical strategies. Farmer notes that competitive investors don't always arbitrage profitable opportunities. That is because it isn't possible to recognize strategies that make abnormal profits, quickly (it typically takes at least five years of observation), and they may not have accumulated enough funds - or credibility to borrow - to fully arbitrage the signals when they decide to do so. But this scenario does mean that at a

Carlo Rovelli resolves the paradox of time.
Rovelli initially explains that low level physics does not include time:

A present that is common throughout the universe does not exist
Events are only partially ordered. The present is localized
The difference between past and future is not foundational. It occurs because of state that through our blurring appears particular to us
Time passes at different speeds dependent on where we are and how fast we travel
Time's rhythms are due to the gravitational field
Our quantized physics shows neither space nor time, just processes transforming physical variables.
Fundamentally there is no time. The basic equations evolve together with events, not things

Then he explains how in a physical world without time its perception can emerge:

Our familiar time emerges

Our interaction with the world is partial, blurred, quantum indeterminate
The ignorance determines the existence of thermal time and entropy that quantifies our uncertainty
Directionality of time is real but perspectival. The entropy of the world in relation to us increases with our thermal time. The growth of entropy distinguishes past from future: resulting in traces and memories
Each human is a unified being because: we reflect the world, we formed an image of a unified entity by interacting with our kind, and because of the perspective of memory
The variable time: is one of the variables of the gravitational field. With our scale we don't register quantum fluctuations, making space-time appear determined. At our speed we don't perceive differences in time of different clocks, so we experience a single time: universal, uniform, ordered; which is helpful to our decisions

particular time some people understand the situation better than their competition and can gain for a while.

Major banks and hedge funds are using statistical and modeling techniques from complexity economics in designing their investment strategies.

Business executives must also respond to these changes in finance. Complexity based finance theory has three main effects on business:

Widely used methods for calculating the cost of capital is the sum total nonhuman assets that can be owned and exchanged on some market according to Piketty. Capital includes: real property, financial capital and professional capital. It is not immutable instead depending on the state of the society within which it exists. It can be owned by governments (public capital) and private individuals (private capital). may be wrong. Beinhocker notes the cost of capital influences executives' major decisions and directly effects shareholder returns. CAPM is Chicago economist Harry Markowitz's capital asset pricing model, the standard method of evaluating the cost of capital of a business. Beinhocker explains that it assumes investors are totally rational, fully informed, markets are efficient and economies operate in equilibrium. And Markowitz's assumptions about how to offset risk are questionable: CAPM assumes all investors hold portfolios of stocks that optimize the trade-off between risk and return. This allows the portfolios to be combined creating a market portfolio, allowing an individual stocks risk (beta) to be measured relative to the market portfolio. But no one holds such portfolios. That would require: Perfect information, unlimited capability to short stocks, matching time horizon for all investors, Continuous updating of the market portfolio -- which would drive up transaction costs prohibitively; so economists use a weighted average of all stocks in the market instead. These problems mean investment managers are actually evaluated against indices such as the S&P 500.
assumes the correctness of Traditional Finance. But at present there is no
This page introduces the complex adaptive system (CAS) theory frame. The theory is positioned relative to the natural sciences. It catalogs the laws and strategies which underpin the operation of systems that are based on the interaction of emergent agents.
John Holland's framework for representing complexity is outlined. Links to other key aspects of CAS theory discussed at the site are presented.

CAS based replacement.
It suggests granting stock options for executive compensation is inappropriate. The stock price can deviate significantly from the value a company is generating and for years. Typically these factors will be beyond the executives' control. And the binding resulted in short-term incentives that drove up executive compensation.
Alters the nature of shareholder capitalism and the purpose of corporations. Beinhocker argues that the CAS goal of any replicator is Richard Dawkin's name for the genotype since it has the evolutionary goal of surviving long enough to reproduce its schematic plan effectively. The action of genetic operators means that the results of successful reproduction may be different to the parental genotypes and phenotypes (Dawkin's vehicle).
is to get replicated. So a good business plan should support the survival and amplification (growth) of its business. Beinhocker associates this with:

Capital being attracted to the enterprise & providers of the capital obtaining a return that is better than the other alternatives
Employees must be attracted and incented to work productively
Suppliers must see profitable relationships with the business
The business must develop goods and services that people want.
Management must ensure the business meets its legal obligations

Beinhocker concludes that a major CAS constraint is that companies are profitable. Traditional economics agrees but has driven executives to focus on short term performance. He notes that DuPont has survived and grown for over 200 years, transforming itself from a start-up gunpowder maker to a major chemicals, materials, and life sciences company. Long term survival and growth requires a more balanced view and focus on variables they can control.

Politics & Policy - The End of Left Versus Right

Noting the close association between economics and politics Beinhocker asks: what will be the impact of Complexity Economics on politics?

The 1789 Revolution French National Assembly included: Third Estate revolutionaries on the left and aristocratic First Estate on the right. Over the next century economics was integrated into this political divide with the communist manifesto of Marks & Engels on the left and Adam Smith's capitalist doctrines on the right. Following the collapse of the USSR after 1989, Beinhocker notes the advent of the Third Way championed by Bill Clinton in the US is the United States of America. & Tony Blair in the UK is the United Kingdom of Great Britain and Northern Ireland. . They proposed to leverage the wealth generating power of Capitalism and humanitarian objectives of Socialism. Beinhocker argues the Third Way evolved into a set of tactics for winning elections from the center, rather than a new economic paradigm. Beinhocker concludes that Complexity Economics can fill this void.

Beinhocker notes the Left-Right divide reflects the alternative views of human nature of: Rousseau/Marx and Hume/Locke/Hobbes. Beinhocker notes that Adam Smith was more in line with the modern understanding of man as both self-interested and altruistic, is the property that since kin share genes natural selection will improve the replicator's selfish goals by supporting the survival of such relatives. Improving the chances of survival of non-kin is hard to explain with a gene preservation theory. Why help a competitive gene? Trivers explanation of reciprocal altruism shows the special conditions under which it can occur.
. There are two crucial distinctions that follow from this:

Changing the core assumptions of human behavior causes radical shifts in the economic and political frameworks. Christina Fong, Samuel Bowles, & Herbert Gintis argue that social policies should be specifically designed to mobilize reciprocal values rather than offend them. Beinhocker views the popularity of Social Security is the social securities act of 1935 was part of the second New Deal. It attempted to limit risks of old age, poverty and unemployment. It is funded through payroll taxes via FICA and SECA into the social security trust funds. Title IV of the original SSA created what became the AFDC. The Social Security Administration controls the OASI and DI trust funds. The funds are administered by the trustees. The SSA was amended in 1965 to include:

Title V is Maternal and child health services.
Title XVIII is Medicare.

being due to its consistency with reciprocity norms.

Beinhocker continues that a combination of individual behavior and institutional structures create the emergent behaviors of the

CAS. So he considers the role of markets versus states.

Beinhocker reasserts his earlier logic: large scale cooperation between strangers has been facilitated by either hierarchies or markets. Beinhocker notes that both capitalist and socialist economies operate based on plans. He argues that the difference is that in the capitalist instantiation the plans are developed and operated by hierarchies inside firms within a market where selection and amplification occur. In the socialist instantiation they are developed and operated by hierarchies directly or indirectly controlled by the state, which is where selection and amplification occur. Hayek notes that the socialist process suffers from: knowledge coordination problems, perfectly informed planners. Beinhocker adds that without markets providing the fitness function, human planners must use deductive rationality, with the limited success of any 'big man' approach.

CAS theory implies markets are not totally efficient. So Beinhocker concludes to assume markets can solve every problem is unrealistic. And Beinhocker notes that Pareto optimality allocates resources measurably so that each change must make at least one person better off and make no one worse off.
isolated from government influence, motivates the Right to restrain taxes, government spending and regulations. But Complexity economics is built with social technologies are defined by Beinhocker as methods and designs for organizing people in pursuit of a goal or goals. He views the three most significant social technologies as: markets, science, and democracy. A war example is Fuller & Liddell Hart's theory of high-speed tank warfare, subsequently instantiated by Guderian as Blitzkrieg.
: Contract law, Consumer protection regulations, Worker safety rules, Securities law; that engender cooperation and trust. And antitrust regulations serve to maintain healthy levels of competition. Frameworks developed and deployed by Theodore Roosevelt.

Complexity Economics indicates that government regulation is a significant part of the fitness function. Beinhocker argues that as long as selection and amplifying are performed by markets the evolutionary process will innovate and adapt. The dynamic nature of the system with its bounty of innovation undermines the concerns about costs of regulation. Beinhocker notes that such government action to support evolution should be operated as a

Walter Shewhart's iterative development process is found in many complex adaptive systems (CAS). The mechanism is reviewed and its value in coping with random events is explained.

Shewhart cycle.

Complexity Economics operates through the rules enacted by individual agents. So, individual behavior can have significant and unexpected effects. This is hugely different from classical microeconomic is a bottom-up view of the economy. It starts with individual decision makers and then builds up to markets and economies, explains Beinhocker. assumptions of homogeneous rational actors.

Beinhocker notes that the world's national wealth is highly unequally distributed. The Left and Right differ about the causes:

Left - colonialism, racism, capitalist exploitation, aid problems
Right - bad governments, corruption, lack of free markets, dependency on aid, racial inferiority.
Geography, Climate, Near-constant warfare in Africa.

Harrison & Huntington proposes a significant role for culture is how we do and think about things, transmitted by non-genetic means as defined by Frans de Waal. CAS theory views cultures as operating via memetic schemata evolved by memetic operators to support a cultural superorganism. Evolutionary psychology asserts that human culture reflects adaptations generated while hunting and gathering. Dehaene views culture as essentially human, shaped by exaptations and reading, transmitted with support of the neuronal workspace and stabilized by neuronal recycling. Sapolsky argues that parents must show children how to transform their genetically derived capabilities into a culturally effective toolset. He is interested in the broad differences across cultures of: Life expectancy, GDP, Death in childbirth, Violence, Chronic bullying, Gender equality, Happiness, Response to cheating, Individualist or collectivist, Enforcing honor, Approach to hierarchy; illustrating how different a person's life will be depending on the culture where they are raised. Culture:

Is deployed during pregnancy & childhood, with parental mediation. Nutrients, immune messages and hormones all affect the prenatal brain. Hormones: Testosterone with anti-Mullerian hormone masculinizes the brain by entering target cells and after conversion to estrogen binding to intracellular estrogen receptors; have organizational effects producing lifelong changes. Parenting style typically produces adults who adopt the same approach. And mothering style can alter gene regulation in the fetus in ways that transfer epigenetically to future generations! PMS symptoms vary by culture.
Is also significantly transmitted to children by their peers during play. So parents try to control their children's peer group.
Is transmitted to children by their neighborhoods, tribes, nations etc.
Influences the parenting style that is considered appropriate.
Can transform dominance into honor. There are ecological correlates of adopting honor cultures. Parents in honor cultures are typically authoritarian.
Is strongly adapted across a meta-ethnic frontier according to Turchin.
Across Europe was shaped by the Carolingian empire.
Can provide varying levels of support for innovation.
Produces consciousness according to Dennet.

in the performance of nations. This was at odds with traditional economics and appeared racist. But it now has additional scientific support. Beinhocker lists cultural norms that contribute:

Individual behavior - Support a strong work ethic, Individual accountability, believe hard work pays. Optimism about the future & realism about the current situation.
Cooperative behavior - belief in non-zero-sum games and the payoff of cooperation. Value generosity & fairness. Sanction free riders.
Innovation - Prioritizing rational science, allowing experimentation, Encouraging competition and celebrating achievement.
Cultures that look backwards or live for today are less productive than those with a high intergenerational savings rate and long-term focus.

Beinhocker uses cultural analysis to find economic impacts:

Harrison and Huntington correlate trust and distrust are evolved responses to sham emotions. During a friendship where no sham emotions have been detected trust will build up.
and GNP per Capita. Beinhocker asserts a relationship between high trust and economic cooperation. Except the US is an outlier: highest GNP per Capita but middling trust. Beinhocker advances two explanations:

The US makes up for low trust with its powerful social technologies.
The US is living off the higher social capital of its past.

Beinhocker highlights Fukuyama's conclusion that broad and strong family values limit the development of wider networks of trust. Cultures with weaker family constraints are able to leverage social technologies to build trust beyond the family.
He notes the
World Bank
was setup as part of the Bretton Woods agreements, as the International Bank for Reconstruction and Development, to repair and reconstruct Europe after the Second World War and as the World Bank continues to provide reconstruction and development resources for projects in developing economies. It includes:
- International Finance Corporation
's Easterly's disappointment with the effect of $1 trillion in aid to the developing world. Beinhocker assumes culture will be one reason for the lack of impact.
Beinhocker views social capital is the collective quantity of resources such as trust, reciprocity & cooperation according to Sapolsky. as the emergent result of agents creating cooperative networks, with cultural norms being the micro rules of agent behavior. He notes Putnam's

Comparative analysis of Northern and Southern Italy, reinforcing the Western narrative of a dynamic North and an untrusting South.
View of declining social capital in the US is the United States of America. . Beinhocker adds Fukuyama's complementary conclusions of a Great Disruption in the US between 1960 and 2000. They both see a complex array of variables contributing including: Altered family structure, rising divorce rate, Entry of women into the work place; with a weakening of women's role in sustaining the social fabric of society. They also include the impacts of: suburban sprawl, and mass media; which indicates to Beinhocker that a proactive approach must be taken to helping social capital to grow.

Inequality is evident in the world. And Beinhocker notes it was similarly distributed in ancient Egypt. With lots of recent research on inequality an improved framework for understanding inequality it has emerged:

Lack of Social Mobility is evident but the causes are a mystery asserts Beinhocker. He notes the answer may lie in the contribution of culture and social technologies. Parental behavior and cultural norms are major influences on child behavior. This leads Beinhocker to argue antisocial cultural norms lead to networks with weak social capital.
Leverage John Rawls's question: If we did not know anything about our draw in the birth-lottery, what kind of system would we want? Matt Miller's answer is to design a system that combines equality of upside opportunity with a downside social safety net. This would have four policies:

Universal health coverage
Raise the quality of public education
Leverage vouchers to delink education spending from property taxes and raise overall spending.
Federally guaranteed minimum living wage.

Beinhocker notes there is a link between culture and history. The legacy of 250 years of slavery and a subsequent 100 years of racial isolation has affected the culture. Cultures do change. Eliminating the culture of poverty requires changes to the norms.
Beinhocker accepts that large multi-ethnic communities require more work to engender trust and cooperation. He sees the ideal as a common layer of norms: supporting democracy (right to freedom of expression, importance of political participation), economic achievement (rewarding hard work, innovation); that are broadly shared by society as a whole. The common layer depends on the: political system, education system, media; and will become increasingly necessary. Beinhocker sees the US constitution and Declaration of Independence as both values and laws. Beinhocker argues the values were effective until the Great Disruption. Many countries must cope with similar stresses.

Beinhocker concludes that none of these issues are left-right. Culture is what determines the success of a society. Politics can change a culture.

Beinhocker sees many opportunities for Complexity Economics to contribute:

Strong reciprocity helps explain mysteries of traditional economics: wages sticking during business cycles.
Environmental issues: Human induced pulse of change in the system. The coevolution of the economy and environment can allow improved insights.
Health care system reform
Campaign finance reform
Electoral system reform
International trade
Reregulation of industries

Beinhocker suggests that economic growth will continue for a while. In particular he sees the economy benefiting from a planet wide society of minds. Evolution of Physical Technologies has exponentially reduced the cost and increased the speed of human interactions. Beinhocker sees the development of a global memory. But he notes three potential issues:

The global economy may be turning on life by devouring resources and polluting the land and seas.
The Physical Technology evolution has been far faster than the Social Technology evolution.
Clash of cultures used to happen at metaethnic frontiers. Now they can collide on TV and the Internet.

Beinhocker asserts that understanding human CAS will help fend off these challenges. Adjusting the fitness function can help drive evolution to encourage us to take a longer view.

CAS theory

The agents in complex adaptive systems (CAS) must model their environment to respond effectively to it. Samuel modeling is described as an approach.

models an economy is a human SuperOrganism complex adaptive system (CAS) which operates and controls trade flows within a rich niche. Economics models economies. Robert Gordon has described the evolution of the American economy. Like other CAS economic flows are maintained far from equilibrium by: demand, financial flows and constraints, supply infrastructure constraints, political and military constraints; ensuring wealth, legislative control, legal contracts and power have significant leverage through evolved amplifiers.
as a

This page discusses the effect of the network on the agents participating in a complex adaptive system (CAS). Small world and scale free networks are considered.

network of

Plans emerge in complex adaptive systems (CAS) to provide the instructions that agents use to perform actions. The component architecture and structure of the plans is reviewed.

schematic

Plans are interpreted and implemented by agents. This page discusses the properties of agents in a complex adaptive system (CAS).
It then presents examples of agents in different CAS. The examples include a computer program where modeling and actions are performed by software agents. These software agents are aggregates.
The participation of agents in flows is introduced and some implications of this are outlined.

agents. Beinhocker critiques & augments the models of traditional economic theory with complexity, M. Mitchell Waldrop describes a vision of complexity via:

Rich interactions that allow a system to undergo spontaneous self-organization
Systems that are adaptive
More predictability than chaotic systems by bringing order and chaos into
Balance at the edge of chaos

and CAS underpinnings.

Beinhocker leverages Sugerscape as a vision of a CAS. The approach, of simple agents in a simple landscape, has clear benefits but it deemphasizes other aspects:

The RSS is Rob's Strategy Studio focus on

Plans emerge in complex adaptive systems (CAS) to provide the instructions that agents use to perform actions. The component architecture and structure of the plans is reviewed.

schematic plans and the details of

This page discusses the mechanisms and effects of emergence underpinning any complex adaptive system (CAS). Key research is reviewed.

emergent

This page describes the adaptive web framework (AWF) Smiley agent progamming infrastructure's codelet based Copycat grouping operation.
The requirements needed for a group to complete are described.
The association of group completion with a Slipnet defined operon is described. Either actions or signals result from the association.
How a generated signal is transported to the nucleus of the cell and matched with an operon is described.
A match with an operon can result in deployment of a schematic string to the original Workspace. But eventually the deployed string will be destroyed.
Smiley infrastructure amplification of the group completion operation is introduced. This includes facilities to inhibit crowding out of offspring.
A test file awfart04 is included.
The group codelet and supporting functions are included.

aggregating agents, constructed from the schemata by

This page discusses how Smiley can support the start of the development phase of an agent-based application.
Startup is an artificial operation not found in living systems. But Smiley must do it and so we discuss an example of starting the development phase.
With the Smiley infrastructure and the application integrated the application's development phase is reviewed.
The association of structural Workspaces for state representation is discussed.
The aggregation of schematic associations of codelets defines a development agent. At the application level it processes the application's schematic strings.
The schematic nature of the data processed by the test application suggests the use of an indirect integration framework. This supports the binding of codelets to the schematic data and detecting and responding to the control operons.
An application polymerase complex emerges.
The codelets and supporting functions are included.

polymerases,

This page discusses how Smiley provides signalling to its agent-based applications.
Alternative strategies for initiating the signalling are reviewed.
The codelets and supporting functions are included.

generating signals, is the opposite approach to Epstein & Axtell. This RSS focus is augmented with the collected descriptions of games of grand master chess along with the analysis. Chess highlights: Traps, Difficulty of evaluating the value of intermediate moves, Collapse; as well as the limited benefit of playing chess without recording the move sequences, since little modeling, analysis or learning takes place. The businesses that Beinhocker discusses usually do not document the detailed strategies their agents use to execute on the high level business goals. This leaves them unable to understand their state and so induces them to avoid complexity and enforce rigid hierarchy.

RSS judges the exponential growth since 1750 as a stream of rewarding short term strategies that have

E. O. Wilson reviews the effect of man on the natural world to date and explains how the two systems can coexist most effectively.

led to a problematic trap.

CAS analysis should allow us to avoid the trap. We have recognized its presence, but the short term gains have pulled us closer over

Carlo Rovelli resolves the paradox of time.
Rovelli initially explains that low level physics does not include time:

A present that is common throughout the universe does not exist
Events are only partially ordered. The present is localized
The difference between past and future is not foundational. It occurs because of state that through our blurring appears particular to us
Time passes at different speeds dependent on where we are and how fast we travel
Time's rhythms are due to the gravitational field
Our quantized physics shows neither space nor time, just processes transforming physical variables.
Fundamentally there is no time. The basic equations evolve together with events, not things

Then he explains how in a physical world without time its perception can emerge:

Our familiar time emerges

Our interaction with the world is partial, blurred, quantum indeterminate
The ignorance determines the existence of thermal time and entropy that quantifies our uncertainty
Directionality of time is real but perspectival. The entropy of the world in relation to us increases with our thermal time. The growth of entropy distinguishes past from future: resulting in traces and memories
Each human is a unified being because: we reflect the world, we formed an image of a unified entity by interacting with our kind, and because of the perspective of memory
The variable time: is one of the variables of the gravitational field. With our scale we don't register quantum fluctuations, making space-time appear determined. At our speed we don't perceive differences in time of different clocks, so we experience a single time: universal, uniform, ordered; which is helpful to our decisions

time anyway. To be valuable Beinhocker's economic framework must be able to highlight the trap and drive avoidance.

Abandoning the equilibrium assumption of Traditional Economics is central to Beinhocker's approach. This makes sense but it is hard to do:

Science has leveraged some of the same assumptions that implicitly follow from the equilibrium framework. People are seen as ubiquitous and interchangeable. Subjective agency is removed by the classical scientific method. History, amplifier and network impacts are sometimes ignored. Developmental phase of the agents is not always accounted for. And significantly samples used in studying behavior often ignore genetic differences which drive and constrain the available strategies of the agents. Beinhocker refers to Harrison & Huntington's comparison of GNP per Capita with
culture
is how we do and think about things, transmitted by non-genetic means as defined by Frans de Waal. CAS theory views cultures as operating via memetic schemata evolved by memetic operators to support a cultural superorganism. Evolutionary psychology asserts that human culture reflects adaptations generated while hunting and gathering. Dehaene views culture as essentially human, shaped by exaptations and reading, transmitted with support of the neuronal workspace and stabilized by neuronal recycling. Sapolsky argues that parents must show children how to transform their genetically derived capabilities into a culturally effective toolset. He is interested in the broad differences across cultures of: Life expectancy, GDP, Death in childbirth, Violence, Chronic bullying, Gender equality, Happiness, Response to cheating, Individualist or collectivist, Enforcing honor, Approach to hierarchy; illustrating how different a person's life will be depending on the culture where they are raised. Culture:
- Is deployed during pregnancy & childhood, with parental mediation. Nutrients, immune messages and hormones all affect the prenatal brain. Hormones: Testosterone with anti-Mullerian hormone masculinizes the brain by entering target cells and after conversion to estrogen binding to intracellular estrogen receptors; have organizational effects producing lifelong changes. Parenting style typically produces adults who adopt the same approach. And mothering style can alter gene regulation in the fetus in ways that transfer epigenetically to future generations! PMS symptoms vary by culture.
- Is also significantly transmitted to children by their peers during play. So parents try to control their children's peer group.
- Is transmitted to children by their neighborhoods, tribes, nations etc.
- Influences the parenting style that is considered appropriate.
- Can transform dominance into honor. There are ecological correlates of adopting honor cultures. Parents in honor cultures are typically authoritarian.
- Is strongly adapted across a meta-ethnic frontier according to Turchin.
- Across Europe was shaped by the Carolingian empire.
- Can provide varying levels of support for innovation.
- Produces consciousness according to Dennet.
through its association with trust and distrust are evolved responses to sham emotions. During a friendship where no sham emotions have been detected trust will build up.
. The 'societies' that Harrison & Huntington plot are
This page discusses the mechanisms and effects of emergence underpinning any complex adaptive system (CAS). Key research is reviewed.

emergent
entities
are, according to Abbott, a class including people, families, corporations, hurricanes. They implement abstract designs and are demarcatable by their reduced entropy relative to their components. Rovelli notes entities are a collection of relations and events, but memory and our continuous process of anticipation, organizes the series of quantized interactions we perceive into an illusion of permanent objects flowing from past to future. Abbott identifies two types of entity:
1. At equilibrium entities,
2. Autonomous entities, which can control how they are affected by outside forces;
. But are they apples and oranges? For example the US is the United States of America. is an aggregate of states from the two sides of the civil war, obeying a constitution designed to maintain both sets of cultures and norms. Norway does not have the same cultural, genetic or regulatory constraints. That must impact the statistic choice.

The following list supports the mapping of Beinhocker's CAS approach into the details supporting RSS is Rob's Strategy Studio's:

Computational theory of the mind and evolutionary psychology provide Steven Pinker with a framework on which to develop his psychological arguments about the mind and its relationship to the brain. Humans captured a cognitive niche by natural selection 'building out' specialized aspects of their bodies and brains resulting in a system of mental organs we call the mind.

He garnishes and defends the framework with findings from psychology regarding: The visual system - an example of natural selections solutions to the sensory challenges of inverse modeling of our environment; Intensions - where he highlights the challenges of hunter gatherers - making sense of the objects they perceive and predicting what they imply and natural selections powerful solutions; Emotions - which Pinker argues are essential to human prioritizing and decision making; Relationships - natural selection's strategies for coping with the most dangerous competitors, other people. He helps us understand marriage, friendships and war.

These conclusions allow him to understand the development and maintenance of higher callings: Art, Music, Literature, Humor, Religion, & Philosophy; and develop a position on the meaning of life.

Complex adaptive system (CAS) modeling allows RSS to frame Pinker's arguments within humanity's current situation, induced by powerful evolved amplifiers: Globalization, Cliodynamics, The green revolution and resource bottlenecks; melding his powerful predictions of the drivers of human behavior with system wide constraints. The implications are discussed.

Steven Pinker describes the
This page reviews the implications of selection, variation and heredity in a complex adaptive system (CAS). The mechanism and its emergence are discussed.

evolutionary pressures on hominids to gain access, via a big brain and nimble hands, to the cognitive niche is Tooby & DeVore's theory that reflects a flexible competitive strategy, described by Steven Pinker, which leverages the power and flexibility of intelligence to defeat the capabilities of genetically evolved specialists focused on specific niches. .

Pinker argues this pressure resulted in our hunter gatherer lifestyle.
Pinker describes how evolution shaped our minds into organs of computation.
Pinker notes that
This page reviews the implications of selection, variation and heredity in a complex adaptive system (CAS). The mechanism and its emergence are discussed.

evolution provided emotional responses to the major challenges hunter gatherers experienced.
Pinker argues it is unlikely that evolution could provide hunter gatherers with direct access to scientific methods.
Pinker accepts Rosch's view that evolution built effective models for predicting the situation on the African savanna is the environment where hunter-gatherers primarily evolved. Its grassland supported large herbivores that could be hunted. Clumps of trees & rocks supported places to hide from large carnivores. Streams and paths add to the signals enabling orientation.
based on proximate history.
Pinker suggests a meaning for life that is focused by pleasure is the outcome of the dopamine reward system, argues UCSF professor Robert Lustig. He, like the early Christians, contrasts [addiction oriented] pleasure with serotonin driven happiness & contentment.
.

Matt Ridley demonstrates the creative effect of man on the World. He highlights:
- A list of preconditions resulting in
- Additional niche capture & more free time
- Building a network to interconnect memes processes & tools which
- Enabling inter-generational transfers
- Innovations that help reduce environmental stress even as they leverage fossil fuels
Matt Ridley describes
the division of labor and development of trade.

Ridley notes how fossil fuels removed the constraints on exponential growth.

Agriculture is seen as a significant, if problematic,
This page reviews the strategy of setting up an arms race. At its core this strategy depends on being able to alter, or take advantage of an alteration in, the genome or equivalent. The situation is illustrated with examples from biology, high tech and politics.

amplifier which

Mervin Kelly described the social architecture that drove innovation at AT&T.

Academic economics has become aligned with finance.
Incentives have become short-term and corrupting.

The agents in complex adaptive systems (CAS) must model their environment to respond effectively to it. Samuel modeling is described as an approach.

Modeling of current schematic structures' values for the
Walter Shewhart's iterative development process is found in many complex adaptive systems (CAS). The mechanism is reviewed and its value in coping with random events is explained.

Shewhart 'planning' phase
Plans are interpreted and implemented by agents. This page discusses the properties of agents in a complex adaptive system (CAS).
It then presents examples of agents in different CAS. The examples include a computer program where modeling and actions are performed by software agents. These software agents are aggregates.
The participation of agents in flows is introduced and some implications of this are outlined.

agents to use in selecting schematic associations to use in generation of the Shewhart 'do' phase execution agents (Beinhocker's interactors is evolutionary philosopher David Hull's term for the schematically specified, instantiated aggregated agent which can interact with the proximate environment and is subject to selection pressures. Dawkins's equivalent term is 'vehicle'.
must be aggregate agents that are able to perform each Shewhart phase when required as detailed below),
Ability to check 'do' results against the predictions from the planning phase models; and separately it must include
Plans change in complex adaptive systems (CAS) due to the action of genetic operations such as mutation, splitting and recombination. The nature of the operations is described.

Schematic operations applied to a germ-line, a master copy of the schematic structures is maintained for reproduction of offspring. There will also be somatic copies which are modified by the operational agents so that they can represent their current state. schematic plan. In the
Walter Shewhart's iterative development process is found in many complex adaptive systems (CAS). The mechanism is reviewed and its value in coping with random events is explained.

Shewhart 'do' execution phase,
Plans are interpreted and implemented by agents. This page discusses the properties of agents in a complex adaptive system (CAS).
It then presents examples of agents in different CAS. The examples include a computer program where modeling and actions are performed by software agents. These software agents are aggregates.
The participation of agents in flows is introduced and some implications of this are outlined.

execution agents that were built from schematic strings of predicted high likelihood of success will instantiate the strings. In the 'check' phase the result is measured against the planning phase model projection. The 'act' phase then adjusts the weights of the models that select the next set of schemata. Mechanisms to enable both the Shewhart cycles and genetic operations; or their equivalents must be in the list so agent learning and evolutionary design will occur.

Exceptional grand & military strategists: Liddell Hart, Paul Kennedy; do not use such assumptions. Instead they promote strategies that cluster into goals including:
Strategy gives way to tactics. If you your company or other emergent system collapse there is no further possibility of strategic action. This page discusses the importance of sustaining the base of operations to support subsequent strategic action.

Survival,
The agents in complex adaptive systems (CAS) must model their environment to respond effectively to it. Samuel modeling is described as an approach.

Modeling,
To benefit from shifts in the environment agents must be flexible. Being sensitive to environmental signals agents who adjust strategic priorities can constrain their competitors.

Flexibility,
Agents can manage uncertainty by limiting their commitments of resources until the environment contains signals strongly correlated with the required scenario. This page explains how agents can use Shewhart cycles and SWOT processes to do this.

Commitments should match preconditions; and work such as theirs shows that within an evolving battle to occupy local niches continuous application of strategic ideas provides significant advantage.
Strategy being applied iteratively through
Walter Shewhart's iterative development process is found in many complex adaptive systems (CAS). The mechanism is reviewed and its value in coping with random events is explained.

Shewhart cycles.

The Red Queen cooperative but competitive asymmetric amplifier is explored by Matt Ridley for significant scenarios:
In this page we summarize the arms race between hosts and their parasites. The deadly nature and adaptive pressure of the relationship is introduced. How the slowly reproducing hosts cope is described. Cultural hosts and parasites are discussed.

Parasite and host,
This page describes the consequences of the asymmetries caused by genotypic traits creating a phenotypic signal in males and selection activity in the female - sexual selection.
The impact of this asymmetry is to create a powerful alternative to natural selection with sexual selection's leverage of positive returns. The mechanisms are described.

Sexual selection,
This page describes the consequences of the asymmetries caused by eggs having to include resources required for the development of sexually reproduced organisms while sperms do not.
The impact of this asymmetry is to force alternative strategies on males and females. The strategies are outlined.

Egg & sperm; showing it is an important driver of change. Additionally:

Bringing
This page reviews the implications of selection, variation and heredity in a complex adaptive system (CAS). The mechanism and its emergence are discussed.

evolution inside the company requires a:

Long term distributed
Plans emerge in complex adaptive systems (CAS) to provide the instructions that agents use to perform actions. The component architecture and structure of the plans is reviewed.

schematic plan that drives the detailed execution actions and represents the effects of applying a
Plans change in complex adaptive systems (CAS) due to the action of genetic operations such as mutation, splitting and recombination. The nature of the operations is described.

Set of genetic operators,
Selection process that tests the fitness of any expressed instantiation. Application software test suites provide a trivial example. Product quality plans and experiments are more complex examples.

Powerful variables and adaptive flow summarized - demonstrated for US health care; supported by the underlying details:
Major parts of near term history of political, economic, socio-cultural and technology summarized events - demonstrated for US health care by AWF is the adaptive web framework. .
Glossary of terms of the shared language - demonstrated for US health care by AWF.
Analysis of the CAS - demonstrated for US health care by AWF. There are many details to monitor and describe. But many of the aspects can be iteratively sourced from specialist organizations and then merged with business specific details developed within the organization.

The evolution of environmental niches and differences in the products and services within them impact strategy and structure:

Steve Jobs's integrated business model at Apple supported the development of a phone architecture based on a networked personal computer. In comparison
This page describes the consequences of the asymmetries caused by business model differences between Apple, Google and Microsoft. This presents a highly visible demonstration of the effects of sexual selection and disruption.
The surprising success of the iPhone undermined well developed strategies that had previously been considered successful. Google's response to the classical Apple strategies is described. The subsequent disruptive effects on Microsoft's business model are reviewed.

Microsoft's eco-system was unwieldy.
Amazon responded to the iPhone
In this page we use CAS theory to review the asymmetric challenges of the retailer Amazon.

with Fire. But like the original
A government sanctioned monopoly supported the construction of a superorganism American Telephone and Telegraph (AT&T). Within this Bell Labs was at the center of three networks:
1. The evolving global scientific network.
2. The Bell telephone network. And
3. The military industrial network deploying 'fire and missile control' systems.
Bell Labs strategically leveraged each network to create an innovation engine.
They monitored the opportunities to leverage the developing ideas, reorganizing to replace incumbent opposition and enable the creation and growth of new ideas.
Once the monopoly was dismantled, AT&T disrupted.
Complex adaptive system (CAS) models of the innovation mechanisms are discussed.
AT&T
, its real power came from developing products for its network, allowing it to see and deliver on the opportunity of Echo.

The limited awareness the senior management has of decisions made within their organization presents opportunities and challenges:

Technologies, including AWF is the adaptive web framework. 's adaptive web framework, allow the network of agents & their associated goals and strategies to be directly available to the senior staff.
To constrain the influence of top down judgments from inhibiting the germination of nascent ideas into innovations some limitations on top down visibility must be provided. AWF implements this capability by allowing all agents to maintain multiple representations of their goal/strategy cascades.

Turchin's
This page introduces the complex adaptive system (CAS) theory frame. The theory is positioned relative to the natural sciences. It catalogs the laws and strategies which underpin the operation of systems that are based on the interaction of emergent agents.
John Holland's framework for representing complexity is outlined. Links to other key aspects of CAS theory discussed at the site are presented.

CAS
Peter Turchin describes how major pre-industrial empires developed due to effects of geographic boundaries constraining the empires and their neighbors' interactions. Turchin shows how the asymmetries of breeding rates and resource growth rates results in dynamic cycles within cycles. After the summary of Turchin's book complex adaptive system (CAS) theory is used to augment Turchins findings.

empires experience oscillations as they respond to concentric
Flows of different kinds are essential to the operation of complex adaptive systems (CAS).
Example flows are outlined. Constraints on flows support the emergence of the systems. Examples of constraints are discussed.

flows: linear growth of food and exponential growth of population followed by collapse, amplification of cooperative acts, asymmetric attack of warrior group on the empire's army and cohesion dependency of the army's response; resulting in the generation of iterative patterns.

Beinhocker's insightful book details the history of Traditional Economics and the nature of his replacement Complexity Economics. The details include an enlightening description of wealth is schematically useful information and its equivalent, schematically useful energy, to paraphrase Beinhocker. It is useful because an agent has schematic strategies that can utilize the information or energy to extend or leverage control of the cognitive niche. . But they threaten the current economic power hierarchy and the responses will be typical of an evolving

CAS.

.
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Politics, Economics & Evolutionary Psychology

Business Physics
Nature and nurture drive the business eco-system
Human nature
Emerging structure and dynamic forces of adaptation

integrating quality appropriate for each market

This page looks at schematic structures and their uses. It discusses a number of examples:

Schematic ideas are recombined in creativity.
Similarly designers take ideas and rules about materials and components and combine them.
Schematic Recipes help to standardize operations.
Modular components are combined into strategies for use in business plans and business models.

As a working example it presents part of the contents and schematic details from the Adaptive Web Framework (AWF)'s operational plan.

Finally it includes a section presenting our formal representation of schematic goals.
Each goal has a series of associated complex adaptive system (CAS) strategy strings.
These goals plus strings are detailed for various chess and business examples.

Strategy | Design |

This page uses an example to illustrate how:

A business can gain focus from targeting key customers,
Business planning activities performed by the whole organization can build awareness, empowerment and coherence.
A program approach can ensure strategic alignment.

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