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Dealing with the Complexity of Economic Calculations

From: John Rust <   > 
Date: Mon, 28 Oct 1996 14:27:31 GMT
Date (revised): Tue, 21 Oct 1997 06:47:03 GMT

Abstract: This essay is a response to a growing negative literature that suggests that neoclassical economic theories based on hypotheses of rationality and equilibrium are of limited practical relevance because they require an infeasibly large number of calculations. Many of the negative results are translations of abstract complexity bounds from the computer science literature. I show that these bounds do do not constitute proofs that difficult economic calculations are ``impossible'' and discuss the type of hardware and software that can make it possible to solve very hard problems. I discuss four different ways to break the curse of dimensionality of economic problems: 1) by exploiting special structure, 2) by decomposition, 3) by randomization, and 4) by t aking advantage of ``knowledge capital.'' However these four methods may not be enough. I offer some speculations on the role of decentralization for harnessing the power of massively parallel processors. I conjecture that decentralization is an efficient ``operating system'' for organizing large scale computations on massively parallel systems. Economies, immune systems and brains are all types of massively parallel processors that use decentralization to solve difficult computational problems. However knowledge capital, in the form of effective institutions, is necessary to ensure that decentralization leads to effective cooperation rather than anarchy and chaos. I suggest that onereason why economists have had great difficulty computing approximate solutions to detailed models of individual behavior and large scale models of the economy is that they are not using appropriate hardware and software. Economists should structure their computations to mimic the key operating features of brains and economies, using parallel processing and decentralized `agent-based'' modeling strategies to solve more realistic economic models where solutions arise endogenously as ``emergent computations''.

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EconWPA began as a conversation between Bob Parks and Larry Blume on January 28, 1993. I located Paul Ginsparg's archive (then and he graciously installed his software on a Sun Sparc system which was supporting the department of economics email and computation. EconWPA began accepting papers July 1, 1993 and had ftp, email, gopher and web interfaces. The web interface for submissions was engineered into existence in July 1995. A complete and catastrophic machine failure in 1999 caused the loss of EconWPA's email new paper announcment service at which time there were over 15,000 subscriptions with over 8,000 unique email addresses.

In 2005, Arts and Sciences commandeered the computing services that I had provided to the Department of Economics since 1987. Some might say that the department was sold out, others would (erroneously) claim that centralization is efficient, and still others would claim that I have few marketing skills.

I was told that I could keep operating EconWPA (as well as many other services including,, and three RePEc servers) but I would receive no support (hardware, software, or anthing else) and (as had been the case) no compensation. At that point, given the apparent low valuation of my activities by the department, and university, it made no sense for me to continue operating EconWPA or other services.

Thanks to all who have supported EconWPA in the past.

A Chinese curse states May you live in intersting times. I have. Bob Parks - Jan 2006