Doyne Farmer

Thank you.

Thank you.

Yeah, well, I sometimes worry it's not the best term. The term is there to indicate that it's coming from the science of complex systems and that we're using methods and maybe even a scientific philosophy of epistemology that's coming out of complex systems, which, although economists like to point to Adam Smith and so on, it's very different than the way they do things

Yeah, well, I sometimes worry it's not the best term. The term is there to indicate that it's coming from the science of complex systems and that we're using methods and maybe even a scientific philosophy of epistemology that's coming out of complex systems, which, although economists like to point to Adam Smith and so on, it's very different than the way they do things

And I think it's much more explicitly complex systems than the way they do things.

And I think it's much more explicitly complex systems than the way they do things.

Well, yes and no. That is, you know, first of all, I'm bending over backwards to be nice to the economists. I hope they appreciate that. And so I intentionally took as much criticism of economics as I possibly could out of the book. I had several editors help me do that. Now, I think there are some things that conventional economics is pretty good at.

Well, yes and no. That is, you know, first of all, I'm bending over backwards to be nice to the economists. I hope they appreciate that. And so I intentionally took as much criticism of economics as I possibly could out of the book. I had several editors help me do that. Now, I think there are some things that conventional economics is pretty good at.

in a simple situation where you need to understand strategic interaction, and that plays an important role, or strategic thinking plays a role, but in a simple context where you can understand, then I think it can work pretty well. I think where it fails is when things get more complicated, when you need to put in more institutional structure, or when

in a simple situation where you need to understand strategic interaction, and that plays an important role, or strategic thinking plays a role, but in a simple context where you can understand, then I think it can work pretty well. I think where it fails is when things get more complicated, when you need to put in more institutional structure, or when

individual agents can't reason well about what's going on. And so you really have to fall back to heuristics and more simple reasoning. And maybe to amplify a little bit on that first point, because I think it's a central one. And in my book, I quote economists laying the problem out. And the problem is,

individual agents can't reason well about what's going on. And so you really have to fall back to heuristics and more simple reasoning. And maybe to amplify a little bit on that first point, because I think it's a central one. And in my book, I quote economists laying the problem out. And the problem is,

And maybe we need to digress to how mainstream economics works and what the difference between the two approaches are. And then I think this will become more apparent. But in mainstream economics, in the capsule version, is that you begin by assigning all the agents, all the decision makers, utility functions, scorecards that say what they like better and what they don't like as much.

And maybe we need to digress to how mainstream economics works and what the difference between the two approaches are. And then I think this will become more apparent. But in mainstream economics, in the capsule version, is that you begin by assigning all the agents, all the decision makers, utility functions, scorecards that say what they like better and what they don't like as much.

And then you give them some way of reasoning about the world. Traditionally, that's rational expectations, meaning they're like Mr. Spock in Star Trek. They can reason about everything, and they're very logical, and they can process all the information and arrive at the correct conclusions. And so you give them those things, and you furthermore assume equilibrium.

And then you give them some way of reasoning about the world. Traditionally, that's rational expectations, meaning they're like Mr. Spock in Star Trek. They can reason about everything, and they're very logical, and they can process all the information and arrive at the correct conclusions. And so you give them those things, and you furthermore assume equilibrium.

which in a standard economic model means supply equals demand. But sometimes you're in a strategic setting where it means you're doing something like game theory, where it's a strategic equilibrium, meaning we've all arrived at strategies that make decisions that are as good as we can do, given that everybody else is not changing what they're doing. And everybody does that.

which in a standard economic model means supply equals demand. But sometimes you're in a strategic setting where it means you're doing something like game theory, where it's a strategic equilibrium, meaning we've all arrived at strategies that make decisions that are as good as we can do, given that everybody else is not changing what they're doing. And everybody does that.

So that'd be the standard thing, rational expectations. Now, And then just to finish, you write all that down in equations. You solve what economists call the first order conditions, meaning you set the derivative to zero. And you compute the decisions that maximize utility for all the agents. And then you calculate the economic consequences of those decisions.

So that'd be the standard thing, rational expectations. Now, And then just to finish, you write all that down in equations. You solve what economists call the first order conditions, meaning you set the derivative to zero. And you compute the decisions that maximize utility for all the agents. And then you calculate the economic consequences of those decisions.