Sean Carroll's Mindscape: Science, Society, Philosophy, Culture, Arts, and Ideas

293 | Doyne Farmer on Chaos, Crashes, and Economic Complexity

Oct 21, 2024

01:11:17

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Doyne Farmer, Director of the Complexity Economics program at Oxford, dives into the chaotic nature of economies and the inadequacies of traditional economic models. He highlights how chaos theory can reshape our understanding of financial systems and promote more accurate predictions. Farmer critiques the reliance on equilibrium, advocating for models that embrace dynamic interactions and real-world complexities. He also draws fascinating parallels between economic systems and ecological dynamics, exploring how innovation intertwines with complexity in markets.

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Quick takeaways

Complexity economics shifts the focus from traditional equilibrium models to dynamic systems, illuminating the chaotic nature of real economies.

Chaos theory reveals that small shifts in economic systems can lead to significant outcomes, aiding in predicting potential crises and cycles.

Agent-based models simulate individual interactions, offering a nuanced understanding of market behavior that traditional equations often overlook.

Deep dives

The Importance of Complexity Economics

Complexity economics offers a fresh perspective on understanding economic systems by shifting focus from traditional models to more dynamic, complex systems thinking. Conventional economic models often ignore the chaotic nature of real-world economies, typically relying on equilibria and rational decision-making assumptions. In contrast, complexity economics emphasizes that real-world interactions among agents can lead to unpredictable and emergent behaviors, which cannot be captured by simplified approaches. This new perspective is evident in how complex systems science provides frameworks to model economies that account for behaviors that may drastically change over time.

Intro

2min

Revolutionizing Economic Understanding Through Complexity Science

6min

Understanding Complexity Economics

9min

Exploring Endogenous and Exogenous Influences in Economic Theory

2min

Rethinking Complexity in Economics

15min

Confronting Fear and Unstable Economic Equilibria

2min

Reimagining Economic Models

13min

Exploring Trophic Levels in Economic Systems

5min

Complexity and Innovation in Economics

22min

A large economy is one of the best examples we have of complex dynamics. There are multiple components arranged in complicated overlapping hierarchies, out-of-equilibrium dynamics, nonlinear coupling and feedback between different levels, and ubiquitous unpredictable and chaotic behavior. Nevertheless, many economic models are based on relatively simple equilibrium principles. Doyne Farmer is among a group who think that economists need to start taking the tools of complexity theory seriously, as he argues in his recent book Making Sense of Chaos: A Better Economics for a Better World.

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Blog post with transcript: https://www.preposterousuniverse.com/podcast/2024/10/21/293-doyne-farmer-on-chaos-crashes-and-economic-complexity/

J. Doyne Farmer received his Ph.D. in physics from the University of California, Santa Cruz. He is currently Director of the Complexity Economics program and Baillie Gifford Professor of Complex Systems Science at the University of Oxford, External Professor at the Santa Fe Institute, and Chief Scientist at Macrocosm. He was the founder of the Complex Systems Group in the Theoretical Division at Los Alamos National Laboratory, and co-founder of The Prediction Company.

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Sean Carroll's Mindscape: Science, Society, Philosophy, Culture, Arts, and Ideas

293 | Doyne Farmer on Chaos, Crashes, and Economic Complexity