New Economics Paradigm: Complexity Theorist J. Doyne Farmer Offers Radical Alternative to Traditional Economic Models

J. Doyne Farmer’s new book, “Making Sense of Chaos,” challenges the traditional approach to economics by proposing a radical alternative known as complexity economics. This approach views economies as systems similar to natural ecosystems or Earth’s climate, and uses large-scale computer simulations to model how billions of people interact within the global economy.

In 2006, economists at the Federal Reserve Bank of New York became concerned about the overheating US housing market. They worried that the bubble might burst and used their best model to predict the potential impact of a 20 per cent drop in house prices. However, surprisingly, the model predicted that not much would happen. Shortly after, house prices plummeted by almost exactly 20 per cent, triggering one of the worst global economic downturns in a century.

The failure of this model highlights one of the biggest criticisms of economics – its reliance on complex mathematical formulas that often mask subjectivity and result in inaccurate predictions. Economist Doyne Farmer believes there is a better way. In his book, he explores why standard economic approaches frequently fail and proposes a radical alternative known as complexity economics.

Farmer’s unconventional path to economics began with dropping out of graduate school to build the world’s first wearable computer, which he used to beat the casino at roulette. In the 1990s, he founded Prediction Company, applying similar principles to the stock market. As a pioneer of chaos theory and complex systems, Farmer believes that complexity economics has now reached a point where it can provide reliable predictions about various economic phenomena.

Overall, Farmer’s approach provides an interesting perspective on how economies operate and could lead to more accurate predictions in the future if adopted widely by economists and policymakers alike.