Making Sense of Chaos with Doyne Farmer

A new paradigm, Complex Systems Thinking, is replacing conventional economic models in assessing complicated situations.

Three principles — “the utility function, belief systems, and equilibrium” — have formed the foundation of economic models and predictive analysis. According to this foundation, individuals make decisions based on boosting their utility within a structure that balances supply and demand with competing stakeholders. Economists have relied on these assumptions to construct economic frameworks designed to forecast future growth, inflation cycles, and fiscal and monetary policy.

While the three-principle model remains useful in evaluating relatively simple scenarios, the template becomes less reliable as the complexity of situations and events increases. To deal with more complicated and difficult economic situations, academics are exploring Complex...