New Books in Economics J. Doyne Farmer, "Making Sense of Chaos" (Yale UP, 2024)
17 snips
Sep 25, 2025 
J. Doyne Farmer, Director of the Complexity Economics Program at the Institute for New Economic Thinking, discusses his book, Making Sense of Chaos. He explores the shortcomings of traditional economic models and advocates for complexity economics, utilizing agent-based simulations. Farmer explains key concepts like bounded rationality and emergence, and how they can lead to more accurate predictions. He emphasizes the importance of data-first approaches and how these insights can help policymakers address pressing challenges like climate change and economic stability.
AI Snips
Chapters
Books
Transcript
Episode notes
Bottom-Up Agent Simulation Beats Top-Down Optimization
- Complexity economics models the economy bottom-up using interacting, boundedly rational agents instead of top-down rational-expectations optimization.
- Simulating many simple agents lets models generate realistic macro behavior that standard tractable models cannot capture.
Chaos Creates Endogenous Unpredictability
- Chaos means nearby states diverge exponentially, making precise long-term prediction impossible even with accurate measurements.
- This endogenous sensitivity explains why complex systems like weather or economies can change spontaneously without external shocks.
Emergence Explains Macro Surprises
- Emergent phenomena arise when collective interactions produce properties not present in individual components.
- Understanding emergence requires bottom-up models that capture interactions among many agents.
