Why has neoclassical economics failed us so miserably in the face of crises? In his new book The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction, Richard Bookstaber shows how the assumptions inherent in the field’s orthodoxy are so distant from lived reality that they lose their power to interpret the world. Bookstaber points to “four horsemen of the econopolypse”— aspects of reality that traditional economics can’t deal with—and calls for a new “agent-based” economic model that invokes real-world simulations. It acknowledges that individuals are not identical, radical optimizers; their interactions with each other and their environments matter; and the future doesn’t always look like the past. “You can’t solve the world through a set of equations,” says Bookstaber. “You cant solve for life; you have to live life.”
If standard economic theory can’t explain a traffic jam, how can it cope with crises?
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From the collection: #INET2017