Living in Complex Economies: On Inconsistent Expectations and Economic Crises

Economic crises are associated with large shocks to beliefs and expectations. They put in question the means by which agents and analysts try to understand and forecast the features and the performance of the economy. Thus, the study of crises involves dealing with the practical strategies that economic actors use to interpret and to anticipate the evolution of their environment, and with the fallibility of those procedures. In this setting, we start with a brief review of traditional arguments on the possibilities and limitations of probabilistic approaches in economic contexts. We then discuss some accounts of the recent macroeconomic crisis in central economies, focusing on the problems which arise in predicting the dynamics of non- ergodic systems, characterized by ever- changing patterns of behaviour and where observed regularities may or may not persist. We then concentrate on a salient behavioural aspect of the processes leading to crises, given by the various ways in which agents rationalize an economic path that will eventually be perceived as an unsustainable bubble. We conclude by stressing the relevance of paying attention to the concrete practices of actors in forming representations of the economy and determining expectations.