The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction

237 Pages·2017·1.78 MB·English

by  Richard Bookstaber

THE END OF THEORY

The End of Theory
Financial Crises,
the Failure
of Economics,
and the Sweep
of Human
Interaction
Richard Bookstaber
PRINCETON UNIVERSITY PRESS
PRINCETON AND OXFORD
Copyright © 2017 by Richard Bookstaber
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ISBN 978- 0- 691- 16901- 9
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Printed on acid- free paper. ∞
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
In memory of my son,
Joseph Israel Bookstaber

CONTENTS
SECTION I: INTRODUCTION 1
1 Crises and Sunspots 3
2 Being Human 14
SECTION II: THE FOUR HORSEMEN 23
3 Social Interactions and Computational Irreducibility 25
4 The Individual and the Human Wave: Emergent Phenomena 34
5 Context and Ergodicity 40
6 Human Experience and Radical Uncertainty 50
7 Heuristics: How to Act Like a Human 65
SECTION III: PARADIGM PAST AND FUTURE 79
8 Economics in Crisis 81
9 Agent- Based Models 94
10 Agents in the Complexity Spectrum 108
SECTION IV: AGENT- BASED MODELS FOR FINANCIAL CRISES 125
11 The Structure of the Financial System:
Agents and the Environment 127
12 Liquidity and Crashes 144
13 The 2008 Crisis with an Agent- Based View 157
vii
viii Contents
SECTION V: THE END OF THEORY 169
14 Is It a Number or a Story? Model as Narrative 171
15 Conclusion 185
Acknowledgments 191
Notes 193
References 211
Index 221
SECTION I
Introduction