Abstract
The paper focusses attention on recent disappointments concerning the limited predictive value of economic modeling. Major events -both international and national- could hardly be foreseen on the basis of our current analytical apparatus. In this context, special attention will be devoted to the implications of the theory of chaos for economic analysis and prediction. Irregular motions in economics are seemingly more dominant nowadays than structural trajectories that are taken into account by means of conventional modeling.
In the paper various lessons from the theory of chaotic behaviour for economics will be drawn. It will be concluded that in various cases chaotic regimes are fairly esoteric which are not always based on plausible economic patterns, although on the other hand economic predictions would have to take stability patterns in the prediction domain more seriously than in the past.
These conclusions will be illustrated by means of two models, one describing a simple chaotic regime for economic development based on a quasi-production function approach, and another one representing a comprehensive economic system in which technological progress is a major driving force and in which diseconomies of scale and scope prevail.
These illustrations teach us the important lesson that in economics much more emphasis has to be laid upon specification analysis and validity tests of models vis-à-vis empirical facts.
