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Beinhocker's "The Origin of Wealth" critiques a neoclassical economics and presents a new school of economic thought called "Complexity Economics". His analysis of business structure is a little bit better. Most of the following chapters are descriptions of "complexity economics" and how while their mathematical formulas are erroneous, his computer lab scenarios provide insight into how humans behave.In my opinion he seems to make the same mistakes that he accuses Neoclassicism of doing, using complex formulas and computerized equations as data for human action and how they behave. Unfortunately he makes mistakes in his final chapters, such as where shuns the free market and supports antitrust. Beinhocker critiques Neoclassicism for some of the reasons that I heavily disagree with it-it involves too much math, assumes perfect rationality, and relies on faulty economic constructs (equilibrium is an example). In short, the theories of Neoclassicism are not in one respect consonant with reality.However, after he critiques Neoclassicism he begins a very long, long, long explanation of his complexity economics. Eric D. He provides evidence that markets are in fact always changing, giving examples of companies that have started as small businesses, evolved into large ones, and then declined into shadows of their former self.
To his credit,he admits that he is really starting a new trend and is providing the framework for a change in economics. He talks about market competition and how dynamic, capitalistic and innovative companies will survive but if they fail then a new and better company will supplant them. In my opinion though, just like Neoclassism, he building the framework on a shaky foundation. He even seem uses Keynesian economics, a school of thought that can be considered as mainstream as mainstream comes, as representing some business cycle theory of complexity economics because it takes in entrepreneurial expectations (To his credit, he still critiques it because he says they still use perfect equilibrium). The book starts off by presenting the history of economic thinking and the rise of the neoclassical paradigm - the current dominating economic methodology that uses complex mathematical models and assumes perfect rationality, equilibrium, etc. In his last chapter he supports a great deal of government intervention which in fact hampers the dynamic creative destruction he supports (I'm not going to go in detail with them as they don't really deal with the book, but I will talk to someone if they want).
He simply provides a new perspective and doesn't really build on it because in reality it requires a vast pile of mathematical research. In short, it appears as if his critique of neoclassical economics is more with the fact that they base their fancy models on 19th century physics, not 20th century physics. In summation, he doesn't really provide a consistent theory for Complexity Economics.
This was a very thought provoking book. It made me understand there are alot of external factors that shape who I am and how successful I may or may not be. If you are looking for an out of the ordinary, exciting social sciences/economics book I highly recommend this.
It looks intimidating at 526 pages (454 pages plus notes and index) but Beinhocker's expository skills give the book an easy to ready narrative style. First he explains why the paradigm on which the science of economics has been based, i.e., a closed equilibrium-based system, is fundamentally in-appropriate for understanding economies and markets.He then explains how the elements of complexity science, which includes concepts such as adaptive-systems, evolution & co-evolution, design-space & fitness-landscape, networks & network-effects, information-flows and emergence, provide a more effective set of cognitive metaphors for understating, interpreting and explaining economies and markets.Finally, he applies the concepts to explain how physical-technologies and social-technologies have developed and inter-acted to build the wealth of societies.There's a lot of new material to those not already familiar with complexity science, and it's worth reading as a very-written and digestible introduction to complexity science.And it's particularly worth reading to those looking to understand societies, economies and markets.
It opens up perspective on the evolution of what seem to be simple systems and remind us that if simple systems which resemble our societies have propensity to evolve like non-linear dynamical sytems, the results of a more precisely defined computational system really cant follow equilibrium economics and math (frankly crisis and all weve been through recently should make that pretty intuitive). In some sense the origin of wealth might be misleading, i read this book a while ago so i dont recall what my motivation was for buying it (i think i was looking for a more neo-classical economic commentary on economic growth), but the results are a fantastic overview of the emergence of complexity and the non-linear dynamical systems that we operate in.
I think its always a measure of praise when a book induces an individual to go back and read the references versus just move on to the next book on the pile.For the unfamiliar (which was me) Beinhocker starts the book out with description of various computational models of simple economic systems that seem almost trivial. The results are the emergence of complexity and patterns that are of extraordinary depth.
This book was fascinating to me and really led to my subsequent reading of, evolution of cooperation as well as various books on complexity and behavioural finance. The issues of local and global peaks and the S curves of innovation that one can associate with the calculus of exploration on these imagined fitness surfaces are tackled clearly.
The emergence of distributions of wealth from things like sugarworld are fruit for extended discussion as are the results of tit for tat results. These computational experiments that were collaberative efforts are still not fully ackowledged as of value to many economists, which continues to shock me, given the richness and paterns one can discern and associate with empirical results we see in the real world.The book continues with straightforward build up of feedback loops that are frequently encountered and fitness surfaces that we all march on.
Books like this give stong insight into the arguments for multiple equilibrium and the non-linearities when perturbing initial conditions (which should serve as humbling evidence that luck is often why we end up where we do).This book takes a while to get through but is really a great starting point, whether anticipated or not, for looking at things differently. But this should be read by all who want to get a flavor of the complexity and behavioral aspects of modern economics.
Then you can read about a new trend which the author calls complexity economics, which introduces the notion of a non-equilibrium state. The author gives one example of how the share price of a company rocketed after a single market transaction. This book covers so many interesting topics, that it is enjoyable by almost everyone, except probably by those who dislike research with a distinctive Santa Fe Institute flavor or by strong defenders of economic models based on "market equilibrium" achieved "instantaneously" by "the invisible hand" and "perfect rationality" influenced only by "random noise".In this book you will find excellent explanations of complex adaptive systems, evolution and its driving forces (diversification, selection and amplification), adaptation, sustainable success, systems theory, entropy and the second law of thermodynamics, power laws and random distributions, agent based modelling, emergence (global patterns resulting - "emerging" - in a system derived from the individual behavior of its constituents), game theory, the psychology of decision making and of the markets, etc. He explains the use of alternative tools like agent based modelling, to better understand complexity. Isn't it at least a weighted average that considers the number of shares involved for each price or some other kind of calculation. This state is the result of the individual behavior of the system's constituents and is observed mainly in complex adaptive systems (like in ecosystems and the living organisms that conform them). This can create booms and crashes with a much higher probability than would a random distribution, due to its power law nature.Finally, I ended up with a deep doubt.
Then one person enters the market and wants to buy 50 shares of this specific company at best price available, he therefore buys the 10 shares at $10 and the rest at $10.40 / New market price = average of new best selling and new best buying price = ($9.80 + $10.40)/2 = $10.10 resulting in a $0.20 increase in share price due to no special event. The concepts are clearly explained (as clear as in any book on such topics aimed at the layman, obviously without the maths).Regarding economics, you will find a very brief history of economic theory from Adam Smith to our days, which the author calls Traditional Economics. I can't remember the figures, but the example goes like this: Best selling price $10 - 10 shares offered at this price, second best selling price $10.40 - 1,000 shares offered at this price / Best buying offer $9.80 - willing to purchase 500 shares at this price / Market price = average of best selling and best buying price = ($9.80 + $10)/2 = $9.90. The author proposes that the economy presents such a non-equilibrium pattern as a result of the behavior of the individual business units that conform it. You will also read about how the way the market operates (software and other mechanisms), as well as how the participants' strategies inffluence the share prices and create price fluctuations even without "financial events" to trigger such volatility. Is market price really calculated as an arithmetic average. Was this an oversimplification by the author to make his point or is it really like this.
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