The Computationalist Theory of Economics - Introduction

Economic activity is computation.

Let me first note that this view is not new. While googling "Computationalist Theory of Economics" results in zero hits as I'm writing this, computationalism is a fairly common view among researchers in cognitive psychology and computer science. Furthermore, computational models are becoming entrenched, from physics, chemistry and biology to sociology, economics and finance. Thus both the idea that physical and social phenomena can be seen as essentially computational and the more pragmatic notion that they can be modeled by computation are gaining mind share, owing in part to the ubiquity of digital electronic computers.

But noting that research in this area is not particularly well-known in the general public, even those who are economically literate, and in the interest of sharing my thinking without being encumbered by existing literature that I haven't read, I will present things as I see, without much in the way of formal acknowledgement except where I see fit. This isn't to say other works haven't influenced me, but much of this thinking is a result of internal synthesis and a product of the zeitgeist. Many others likely stumbled upon this way of thinking after being exposed to pieces of it in unrelated context. It's not a coincidence that the area is named in different ways with a slightly different focus - complexity economics, agent-based computational economics, cognitive economics, just to name a few. Some economists claim that they have accounted for it all along, whereas others disagree with its usefulness. The taxonomy of knowledge is fuzzier than the rigid structure of attribution gives it credit for. I'll use this fuzziness as an excuse to avoid the mind-numbing tediousness that is proper scholarly attribution.

Before we restrict ourselves to economics, let's review why computation is a useful model for real-world phenomena:

Completeness

Insofar as real world phenomena deal with finite data, finite computation can fully describe all real world phenomena. While there's not as much evidence that reality is finite, reality as we perceive it, to the extent that cognition depends on computational mechanisms, likely is finite. Furthermore, even if cognition isn't finite computation, all concrete communication of cognition is essentially finite. In fact we lack the ability to explicitly reason about that which cannot be finitely described. Thus, we lose nothing of essence by considering all reality as computation.

Reducibility

All computation is reducible to simple models of computation, which allows for both theoretical mathematical analysis as well as practical computational exploration of phenomena.

Equivalence

There are multiple equivalent computational models, to name a few: turing machines, lambda calculus, recurrent neural networks, cellular automata and unrestricted grammars. Each model of computation is universal and is capable of emulating every other model of computation.


What is economy?

Now that we've established the mental framework in which to discuss economics, we can ask: what sort of computational system is an economy? What does it compute and how? In what ways can we map the concepts derived from traditional economics to this new framework?

The basic unit of this computational system is an economic agent, which is also a computational system. Each economic agent then computes bids (which are simply offers made to others to exchange one type of goods and/or services for another in some concrete amounts) based on his ability to produce, his preferences in regards to consumption, bids made by others and other information that can affect any of those. A market, then is a collection of related bids, or an environment in which bids meeting certain criteria are made. Whenever bids are matched transactions occur and the matched bids disappear. A collection of markets, combined with production systems (which can be seen as a special form of market - after all all production is transformation of one for or another and the ability to transform that production mechanisms give you, is a natural bid, based on which artificial bids are made) forms an economy. Note that neither the notion of a market, nor the notion of an economy, is precise. These are concepts.

I think it's fairly intuitive to see that an economy then is a computational system that consists of economic agents who are themselves computational systems, one that is largely self-organizing by way of computation of bids. How this self-organization comes about and the variety of different forms it takes, not to mention how and why specific organizations work are open questions that we'll explore.