Making Sense of Chaos: A Better Economics for a Better World

If the real economy is the metabolism of civilization, and the financial system its enteric nervous system (its gut brain), then scientific models are an important component of civilization’s nascent cerebral cortex. Just as the cerebral cortex enables us to make sense of our environment, detect and avoid dangers, plan ahead and reason, scientific

he observed that whenever the cumulative production of a given type of airplane from a given factory doubled, its cost of production dropped by about 20 per cent.

Later I found out that Markowitz himself knew the same thing: Ironically, when he invested the money from his Nobel Prize, he used a portfolio with equal weights to pick a few of his favorite stocks rather than the formula he received the prize for discovering.

Forty per cent of global photosynthesis is now required to support human civilization.

Dynamic Stochastic General Equilibrium (DSGE)

But because nonlinear dynamics is a prerequisite for endogenous dynamics – that is, motion from within – linearizing the equations makes it impossible for dynamics to emerge.

While the Keynesian econometrics models might fit historical data, such models ignored the possibility that decision-making might change when circumstances did.

Games converge to a static equilibrium if they are non-competitive or simple; conversely, if they are both competitive and complicated, they are unlikely to converge – instead, their dynamics will be chaotic.

Complex systems like the brain or an ant colony are called adaptive complex systems. They are distinguished from ordinary complex systems with simpler emergent behaviors by the fact that their properties have evolved over time, through a process of selection. Consciousness doesn’t emerge by simply hooking up neurons at random; they have to be conne