Preamble
Before you rush off on the grounds that this book has nothing to do with Computing, let me reassure you that it does. As the author says, we now have access to a huge amount of data and a huge amount of processing power thanks to powerful computers. What this means is that we don’t necessarily have to rely on economic theory to help us predict what will happen to the economy.
I found it interesting to read because the economist Milton Friedman believed that it didn’t matter how realistic a theory’s assumptions were as long as its predictions were accurate. I was never convinced by this argument myself, on the grounds that if the theory is wrong, how would you know why its predictions were accurate? How could you repeat the success? How would you know if it was not just chance?
I was very convinced by Herbert Simon’s theory of “satisficing”. This is the practice of basically finding the best possible outcome in circumstances of not having all the facts at your fingertips or the ability to process them mathematically. Whereas standard economic theory insisted that companies and people pursued maximisation (of profits and utility respectively), his "satisficing” theory suggested that in the real world companies and people do the best they can in the circumstances.
That theory is more relaistic than the standard economic theory, but in my opinion is equally ill-equipped to make predictions!
However, my reading of Making Sense of Chaos is that the availability of large datasets and powerful computers making accurate predictions is more likely than it used to be.
Of course, the huge fly in the ointment is the possibility of what Nassim Nicholas Taleb has called “black swan events”. These are events that are highly unlikely to occur, making predicting them well-nigh impossible. What we should do instead is build in enough flexibility (antifragility) to be able to withstand their impact.
Anyway, enough of this persiflage. What follows is my review as it appeared in Teach Secondary magazine, when I have imposed on me a word limit of 150.
Click the image to see this book on Amazon (affiliate link)
J. Doyne Farmer, Allen Lane, £25
The review
According to traditional economic theory, consumers act perfectly rationally, aided by perfect information. Needless to say, real-world behaviour can be relied upon to throw up a few exceptions to this view of the world. Farmer’s position is that we can no longer rely on traditional economic theory, due to the modern prevalence of both powerful computers and huge datasets. Thus, we should instead embrace ‘complexity economics’, which entails the running of sophisticated computer simulations to discern likely outcomes in different scenarios – especially when it comes to ‘surprise’ shocks, such as the COVID pandemic.
The contents might not be the best set text for GCSE economics students, but it presents a highly readable and convincing case against the economic status quo, and would make for a great supplementary text.
This book was first reviewed in Teach Secondary magazine.