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EconTalk

Chaos and Complexity Economics (with J. Doyne Farmer)

Aug 26, 2024
J. Doyne Farmer, a physicist and professor at Oxford, champions a revolutionary approach to economics through complexity science. He critiques traditional models for failing to capture human behavior and proposes more dynamic models that can better predict economic phenomena. The conversation touches on the impact of lending policies on the housing bubble and parallels between weather and economic forecasting. Farmer emphasizes the need for interdisciplinary dialogue to bridge gaps in economic thought, pushing for a future where complexity economics is more widely accepted.
01:05:15

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Quick takeaways

  • Complexity economics provides a dynamic framework for understanding human behavior in economic systems, challenging traditional utility-maximization models.
  • Agent-based modeling in complexity economics captures individual motivations and interactions, offering richer insights into market phenomena than standard theories.

Deep dives

Understanding Complexity Economics

Complexity economics applies methods from complex systems science to the field of economics, diverging from traditional models that rely on utility maximization. This approach emphasizes creating simulations to better understand economic behaviors rather than just formulating mathematical equations. A significant aspect of complexity economics is its focus on quantitative models that provide realistic predictions and detailed insights about institutions, making them applicable for policy analysis. By considering a multitude of factors influencing human behavior in real-world scenarios, like climate change and macroeconomic fluctuations, this model aims to address the complications that standard economic theories often overlook.

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