chaos theory in economics

Chaos theory in economics examines how small changes in initial conditions can lead to vastly different outcomes in complex systems, like markets. Even tiny fluctuations, such as consumer sentiment or a minor policy change, can create unpredictable effects on supply, demand, and prices. This unpredictability makes economic forecasting challenging, as standard models may fail to account for the intricate web of interrelated factors. Essentially, chaos theory suggests that the economy behaves in a non-linear, dynamic manner, where seemingly trivial events can trigger significant consequences, highlighting the limits of traditional economic predictions.