How has this all been accepted

or not accepted by the mainstream economics community?

For me, personally, that’s a long

story. I think all I can do is

I feel strongly

personally about it, but rather than go into history, I’ll simply

say that

the field of economics

has long thought this way, of seeing the economy

as evolving and complex, but it was never able to mathemetize

that point of view, so what became

accepted as theory in the 20th century was this

stasis, and equilibrium, and all

problems being extremely well defined, and all

the agents in the economy being deductive geniuses

who can solve these well-defined mathematical problems.

Now, with these new tools, we’re coming back to an earlier

view of economics, where it’s evolving and changing

and perpetually giving new patterns, more like the game of life

if you like, where you see quite new patterns

and yet these are structures you can

isolate and study. Economics

is having a bit of a difficult time

absorbing this. I would say the people who are

middle aged and trained in the mainstream are

intrigued by it, but they’re not quite sure whether to accept it or not.

People under 30, graduate students, postdocs

are wide open to these ideas, and there’s a lot of work

getting done in that. The other thing I want to point out is

that the crash in

2008 helped this point of view enormously.

We had to rethink a lot of

sort of, ‘truths’, quote unquote. Yeah, that’s right.

The Economist magazine pointed out that

the US economy wasn’t the only victim

of the Wall Street meltdown. Neoclassical or standard

economics was another victim, and I think that’s probably

too strong a statement, because standard economics will be around

for a long time. It’s well

understood, it may be something of a simplification, but

it’s got a benchmark and it works fairly well.

After 2008, 2009

a lot of the assumptions were questioned, and rightly so.

People began to say, well, is it true

that all these interactions among economic agents

all the little investors are perfectly independent, therefore

we get normal distributions and normal deviations

as we’re in the financial models, of course

that’s not true. And people should be aware that

financial system was set up of networks of banks

and other financial institutions, and

if one bank got into trouble, that could affect another bank in the node

next to it, which could affect other banks

and so you get propagations of difficulty

or propagations of distress spreading across

those networks, so

for quite a long time, for the least 3 or 4 years, 5 years,

economics has been open to different points of view

for the first time, I would say, in decades.

One of the interesting points of view

is behavioral economics, and that’s asking

actual people, consumers, or

people who run companies, what are you likely

to do in such and such a situation, how

would you react in this or that situation

and it’s accepting that not all problems in economics

are well-defined logical ones -- And that people are not

necessarily rational decision-makers -- Exactly.

So we’re backing off from those assumptions as well,

and so economics I think is making major moves

to encompass reality, and

we’ll never finally get there, but

rather than say, imagine a perfect world,

where people are perfectly deductive, problems are perfectly defined,

everything is perfect, everything is in balance,

we’re saying imagine an organic world where the types

of situations I’m facing are not

that well defined, how do people behave and how do they interact

and what sort of patterns would we see. I keep coming back

to patterns or structures, and I’m sure that’s a theme

for your course. Right, we talk about emergent phenomena

as being patterns. That’s right.

So I’m sitting here in Silicon Valley, I'm

in Palo Alto here, and if I work for a high tech company

which I do, PARC, if we launch

some product, it’s not that well defined,

we don’t know how the product will work technologically

two years in advance, we don’t know who will enter that space

we don’t know what our rivals are going to do, we don’t know how the government will

regulate this or that, yet we have to make decisions.

So economics is becoming very aware that

it’s not just solving --

consumers or firms are not just solving well-defined problems

the big thing is figuring out what the problem is

in the first place, or what the situation is in the first place.

And we can start to think about that, and model that

as well. I want to make one other point,

and say this, that there’s an idea

out there that complexity economics

is really doing economics the same way as

before, but having -- doing agent-based modeling

and throwing a computer at all of this, no, that’s not the point.

The point is to see that

agents, the players in the economy, are creating

some situation that they may always have to react to

that changes their behavior again, that changes

the situation or the ecology that’s mutually created

and have to re-react. All of that may never settle down

perpetual novelty -- In a constantly

highly dynamic state, instead of at an equilibrium. Yeah,

and so we’re doing nonequilibrium

economics and beforehand a lot of people

would have said well we can’t do that, you know, you can’t capture

it’s too complicated -- You can’t do the math -- Yeah.

It’s too complicated to capture in pencil and paper. Maybe

But again this is like the game of life or it's

like some very fancy or weird cellular automaton. What

you can do is study outcomes, look for patterns,

isolate the phenomena that you want to see

and then make toy models, or make very particular

models that you can study, possibly using mathematics, sometimes

using the computer. So it’s not just throwing a computer

blindly at it and simulating, it's

much more using many different tools

including computation to study

phenomena that might arise and then maybe melt away

it’s -- one

analogy that fascinates me is that

from afar, the sun in the solar system

the sun looks as if it’s in equilibrium,

92 million miles away, or whatever it is, and

but if you get up close, or if you look closely at the sun,

you’ll see that there’s all sorts of phenomena happening

temporarily, there’s x-ray bright spots, there’s magnetic

loops, there’s plasma ejections, all

kinds of things are bubbling and boiling and going on

The economy behaves like that. Maybe grossly it looks

as if it’s in some sort of equilibrium, but there’s all kinds of

bubble and boil phenomena in the economy, and as it happens

those are the very phenomena, those are the

things that people make money out of, those are where the

investments are going, those are where the new technologies are launched.

Those are where all the action is, and that’s where all the trouble happens.