This chapter contrasts traditional economic theories with complexity economics, highlighting their limitations in predicting real-world behavior. It emphasizes the necessity for more nuanced models that incorporate human decision-making and the intricacies of markets, particularly in contexts like the housing market. By using agent-based modeling and simulations, the chapter showcases how these approaches can lead to better understanding and forecasting of economic phenomena.
Physicist J. Doyne Farmer wants a new kind of economics that takes account of what we've learned from chaos theory and that builds more accurate models of how humans actually behave. Listen as he makes the case for complexity economics with EconTalk's Russ Roberts. Farmer argues that complexity economics makes better predictions than standard economic theory and does a better job dealing with the biggest problems in today's society.