The financial encyclopedia uses cookies to improve your user experience. Find out more here!



 

 


 

Chaos theory
 

 

A theory that describes the behaviour of deterministic nonlinear dynamic systems characterized by sensitivity to initial conditions. Sensitivity means that small differences in starting positions for the system result in large differences in the positions of the system achieved after a finite length of time. Chaos makes long-term forecasting impossible; even the smallest error in determining initial conditions will lead to a large divergence of forecast from actual outcome.

 

Reference: Oxford Press Dictonary of Economics, 5th edt.