UNMASKED ECONOMIST: Can science reinvent the economy?

mercoledì 22 giugno 2011

Can science reinvent the economy?

Finance and Economics

Can science reinvent the economy?

We have created a monster. Financial markets have grown so complex that neither intuition nor standard economic models can get to grips with them.

So what's to be done to avoid a repeat of the financial disasters of the past couple of years?

In this special feature, Mark Buchanan looks at some of the creative ideas being explored to tame the markets, not just by economists, but by physicists, engineers, biologists and others.

What does science have to say - and will anyone listen?

1.

Bubble math

Common sense would have suggested that the huge housing bubble would lead to disaster: so why did some financial institutions assess risks with models that ignored the possibility that prices might fall?

2.

The human factor

Purely mathematical approaches to predicting the economy have a big drawback – the irrational behaviour of people

3.

Network solutions

Bubbles are nothing new, but now a bubble in just one country can cause the whole world's economy to collapse – so how do we stop the dominoes toppling?

4.

Predicting the big one

According to classical economics, financial crises don't happen – clearly, then, there is a lot wrong with classical economics

5.

An economy in a computer

Can we pack an entire economy, with all its complex human and political interactions, into a computer? Yes, say experts, as long as we're bold enough about it

6.

Out of kilter

Trying to predict markets in the same way as earthquakes comes with the same limitations – it does not tell us when and where the next cataclysmic event will be

7.

Will it be enough?

For all science can tell us, we might in the end have to accept that we are at the mercy of the markets – and ultimately human nature

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