ABSTRACT
Ideas from the theory of complex dynamics are useful for economics and finance. This chapter outlines a toy version of general equilibrium theory, recursive general equilibrium theory, global asymptotic stability theory, concepts from empirical nonlinear science. It looks at vidence for chaos in macroeconomic data. The chapter identifies possible routes to chaos and complex dynamics in economics following much the same intellectual strategy as that followed by natural scientists as reported in the survey by Eckmann J. and D. Ruelle. Evidence is strong for nonlinearity in industrial production, civilian employment, unemployment rate, pigiron production, and Wolfer's sunspot numbers. Chaos theory teaches people that trajectories generated by chaotic maps are potentially perfectly predictable provided that can measure the state perfectly. The idea that there should be no arbitrage profits in financial equilibrium is linked up with the growth theory to show how dynamics in the "dividend" process are transmitted through the equilibration mechanism to equilibrium asset prices.
