Complexity Economics

In 2006, the Fed asked its macroeconometric model what would happen if house prices dropped by 20%. The model projected the past into the future and said: "Not much." Well, the financial crisis proved it wrong. Meanwhile, DSGE models, the main alternative up to this date, do not feature financial institutions; "They are not even good enough to be wrong," says Doyne Farmer.

http://www.weforum.org/

Introduction to our complexity economics course. Follow along with the course eBook: https://goo.gl/vhRaaQ See the full course: http://complexitylabs.io/courses Or the course can be taken as a playlist on YouTube at: https://goo.gl/0ffShA Twitter: https://goo.gl/Nu6Qap Facebook: https://goo.gl/ggxGMT LinkedIn:https://goo.gl/3v1vwF

Why is there such a gap between economic theory and the reality of our lived experience? Mainstream economics often presumes that people make rational decisions based on perfect information. These fictional decision-makers inhabit static worlds, where variables remain constant and where simple algorithms can predict the rise and fall of financial markets.

With the perceived failure of mainstream economics to predict the financial crisis, there has been a renewed interest in alternative methodologies to the mainstream. Amongst the most radical of these alternatives is 'Econophysics' which attempts to apply ideas and concepts from physics to economics issues; most notably in financial economics.