Economics on the edge of chaos: Some pitfalls of linearizing complex systems

We discuss some issues and challenges facing economic modellers when confronted with data generated within a non-linear world. The pitfalls associated with the linearisation of inherently non-linear models are raised and the concept of robustness defined and proposed as a necessary property of scientifically valid models. The existence of chaos in economic time series is discussed and an example, using financial data, presented.

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