Improving the performance of an economic system: Controlling chaos

Michael Kopel

Journal of Evolutionary Economics, 1997, vol. 7, issue 3, 269-289

Abstract: In this paper we use a simple model of evolutionary market dynamics to illustrate how chaotic behavior can be controlled by making small changes in a parameter that is accessible to the decision makers. This approach is commonly referred to as `targeting' - one can easily switch from a chaotic evolution of the market to any desired regular motion. We show that complex dynamics leads to inferior performance in our model and that an application of such a correction mechanism by the decision makers of the firms yields a considerable improvement in the system's economical properties in terms of profits and profitability. We present numerical simulations in order to illustrate the effectiveness of this method.

Keywords: Cobweb models; Bounded rationality; Controlling chaos (search for similar items in EconPapers)
JEL-codes: E32 (search for similar items in EconPapers)
Date: 1997-10-21
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Citations: View citations in EconPapers (26)

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