Housing prices are determined through aspiration level adaptation, where sellers consult real estate agents to find comparable prices and establish an initial selling price. If a house does not sell within a reasonable timeframe, the price is gradually reduced until it sells or until the seller refuses to go lower. This process shows that housing prices respond slowly to market changes and can result in significant discrepancies between the number of buyers and sellers in the market.
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.