Sean Carroll's Mindscape: Science, Society, Philosophy, Culture, Arts, and Ideas 161 | W. Brian Arthur on Complexity Economics
Aug 23, 2021
W. Brian Arthur, a pioneer in complexity economics, dives into the intricate dance of modern economies, emphasizing that traditional models often fall short. He explores how individual behaviors disrupt equilibrium and advocates for adaptable forecasting methods amidst chaotic interactions. The conversation compares insights from physics and biology to enhance our understanding of economic systems. Arthur also highlights the unpredictable nature of markets and the significance of embracing complexity to inform better policies and charitable giving.
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El Farol Problem
- W. Brian Arthur explains the El Farol problem, where 100 people decide whether to go to a bar based on its predicted crowdedness.
- Forecasts become self-negating, as everyone avoids a crowded bar, and accurate predictions fail.
Economics Defined
- Economics studies how individuals make decisions when others are doing the same, focusing on arrangements for fulfilling needs, not just markets and prices.
- This "ecology of decisions" is central to economics, as individual behaviors are interdependent and unpredictable.
Complexity vs. Neoclassical Economics
- Neoclassical economics simplifies by assuming identical, rational, well-informed agents in equilibrium, enabling mathematical analysis.
- Complexity economics drops these assumptions to explore more realistic, dynamic systems, acknowledging differences, uncertainty, and constant change.