Podcast

Making Sense of Chaos with Doyne Farmer

Doyne Farmer and Martin Reeves

Boston Consulting Group, 2024

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Traditional economic theory tends to function adequately under fairly simple scenarios. However, as complexity in a system increases, the efficacy of conventional models deteriorates. In a recent Boston Consulting Group-Henderson Institute podcast, moderator Martin Reeves interviews Doyne Farmer, a leader in complex systems who brings a new perspective to economics. According to Farmer, Complex Systems Thinking — and in particular Agent-Based Modeling — provide far more accurate forecasting and analytics. Economists, business owners, and investors interested in a rigorous examination of emerging economic reasoning will find this a robust analysis.

Summary

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...

About the Podcast

Doyne Farmer is a complex systems scientist at the University of Oxford and the Santa Fe Institute. Martin Reeves is chair of the BCG Henderson Institute.

Making Sense of Chaos with Doyne Farmer

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

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