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Butterfly Economics: A New General Theory of Social and Economic Behavior

Butterfly Economics: A New General Theory of Social and Economic Behavior
By Paul Ormerod
240 pp, Pantheon, 2000
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This short book offers some healthy skepticism about modern economic analysis -- especially about its ability to forecast accurately the results of policy -- while touching on subjects ranging from crime to macroeconomic management to evolution. Traditional economic thought draws heavily on classical physics, with its emphasis on the notion of equilibrium. But Ormerod, an editor at The Economist, challenges this framework and its universal assumption that economic agents act independently of one another, each according to his or her own preference and circumstance. He insists instead that individual decisions in a social community are influenced by information provided by the behavior of others. Hence economics should draw more heavily from biology and knowledge of other social creatures such as ants. The resulting model would technically be deterministic, but it would be so complex and sensitive to starting conditions that, in practice, predictions would be impossible. Given this view of the world, the author argues, governments should avoid detailed social or economic management and focus instead on the medium- to long-run fundamental orientation of societies.