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Editorial Review Product Description
A beautifully written and engaging look at the cutting edge where economics meets complexity theoryIn this cogently and elegantly argued analysis of why human beings persist in engaging in behavior that defies time-honored economic theory, Ormerod also explains why governments and industries throughout the world must completely reconfigure their traditional methods of economic forecasting if they are to succeed and prosper in an increasingly complicated global marketplace."It is accessible and even entertaining. . . Mr. Ormerod not only writes about capital, but also points to a way it may at last be understood." -New York TimesAmazon.com Review
In Hollywood, William Goldman's famous dictum that nobodyknows anything is accepted as gospel. Nobody can tell you how much amovie will gross before it's released, no matter how big the stars oradvertising budget. Compare the box-office receipts of twosummer-of-'99 horror movies, if you have any doubt about this law:The Blair Witch Project, with no stars and a small budget,earned far more money than the very expensive, star-driven TheHaunting. Yet, in economics, it's assumed that everything boilsdown to an engineering calculation: Maintain girders A, B, and C, andthe roof will never cave in.Paul Ormerod, author of The Death ofEconomics (1994), offers a different idea: "In the currentstate of scientific knowledge, it is simply not possible to carry outforecasts which are systematically accurate over a period of time." The title Butterfly Economics comes from the idea in chaostheory that a butterfly flapping its wings here could cause ahurricane on the other side of the world. It's not that chaos isguaranteed in economics; it's just that we never know when it'lloccur, or what will cause it. "Small changes can have bigconsequences, and vice versa," Ormerod notes. His arguments range farafield. He talks about crime and family structure, biology, fashion,and many other topics seemingly unrelated to economics. But it comesdown to this: No matter how you analyze it, human behavior issurprisingly random. And no economic model can account for all of itat any given time. Butterfly Economics will, of course, be of most use to thosewith professional interest in the titular topic (economics, that is,not butterflies). But anyone seeking a good read on the vagaries oflife might want to give this one a shot. Any author who can analyzethe behavior of ants and Hollywood studio executives in successivebreaths deserves a wide audience. --Lou Schuler ... Read more Customer Reviews (24) 
Dismal science not so dismal after all
Butterfly Economics should be required reading in Washington DC. It makes a compelling case that classical (equilibrium-based) economics is being supplanted by a much more realistic - and interesting - complex systems
theoretical foundation. The net result is that short-term Government interventions are not particularly likely to produce their intended results - and that long-term programs should be more thoroughly conisdered with respect to the dynamics of their impact. The book is very well-written and very accessible with numerous well-chosen examples and figures.Strongly recommend
lucid and remarkably readable
I bought into this book- which systematically tears down a series of theories on economic modeling- until the second to last chapter.At this point, Ormerod presents a fairly cursory overview of his own theory of interacting agents, and though his presentation isn't so heavy-handed as to come across as a sales pitch, I feel that I'm expected to view this as the culmination of economic theory.Just as in the models he discards, there seem to be some brash oversights and simplifications in his own thinking.
For example, he repeatedly insists that it's sufficient to study just the U.S. economy because it is by far the most important economy in the world (that's changing already), and arrogantly dismisses Thomas Malthus' prediction that economic growth would ultimately be curbed by overpopulation (it already is in some parts of the world).He points to 170 years of evidence showing that continued growth is inevitable in a capitalist system, but bases this on assumptions that world pollution isn't getting worse (?!) and that 170 years is sufficient duration of time for which to make conclusions (when just a few chapters earlier he cited an anecdote about 200 years being nothing on the geologic scale and the past can't always predict the future).
These exceptions aside, I'm generally reverential towards this work, and Ormerod's ability to lucidly explain fundamental but often counterintuitive concepts in economics.For example, the book begins with a description of behavior in an ant population, and the tendency of ants to influence each others' behaviors in a way that makes the group population seem incomprehensible.He repeatedly recalls this example throughout the text to describe how interacting agents affect our economy and lead to unpredictable results (for example, the success of the inferior VHS format vs. Betamax).Surprisingly, he praises the effectiveness of business studies, despite their lack of theory and analytical rigor, for emphasizing an empirical understanding of how things actually work and pragmatic search for a good vs. perfect strategy.He offers some compelling recommendations on fiscal management- for example, that we should encourage speculation on foreign exchange so that exchange rates converge closer to an actual value vs. drift away to extreme under or overvaluation.
I don't ever read economics texts, don't follow the stock market, but found this to be an utterly compelling book.I believe that it has not only influenced my understanding of social and economic behavior, and I expect to re-read this in a few years' time.
Making the dismal science more exciting
This short treatise examines the models of economic performance from the viewpoint of an external observer, and shows how many of these models fail to accurately account for fundamental human behaviors.In contrast, he puts forth models derived from the life sciences (ecology and animal behavior) and softer social sciences such as sociology and psychology, and shows how they are often better at explaining human behavior than mathematical equations.
The writing style is straightforward and very concise, yet not simplistic.The book requires minimal knowledge of economics to understand, but does require at least a high-school level knowledge of American and world history.The amount of math is appreciable, but the hard stuff is left in appendices, with graphs used in the main text.One plus of the book is it references many other influential texts in the social sciences.Overall, a good and quite quick read.
Takes on big questions with small examples
Butterfly Economics starts off a seemingly obscure academic study of ants finding food, and from this simple beginning, Omerod ends up taking on big questions such as "What are the limits of economic theory?" and even bigger, "What role should government play in the economy?".It's a pretty impressive journey and for the most part, Ormerod keeps it lively and interesting.
Omerod cites a study, which found that a colony of ants searching for food from two identical, replenished piles does not settle on one pile, despite the fact that ants leave chemical scents to help other ants find the food they have just located.One would think that it would be only a matter of time before all the ants would chose a single pile to get food, but in fact, the probability of a single ant choosing either pile oscillates unpredictably.This unpredictable beahvior is actually reproduced by a simple mathematical model.The important thing about this mathematical model is that it sets up rules for individual ant behavior, but simply cannot be summed up to explain the entire colony.Omerod goes on to show that this approach often provides better explanation of the economy.
Omerod goes on to elaborate his ideas through diverse subjects crime statistics, the unpredictable nature of Hollywood hit movies, divorce rates, economic forecasts, and the distribution of the size of businesses over time.For the most part, Omerod's writing make this an interesting rather than tedious read, and most of his explanations are pretty lucid.There were a few times I had to read things a second or third time to understand, and a couple times, Omerod's simplifications resulted in confusing leaps in his explanations.However, one should realize Omerod took on a task with a high degree of difficulty and just about nailed it.
Omerod argues for a more biological approach to understanding economies, rather than a more mechanical approach.In addition, Omerod shows that short term prediction of economies is fraught with difficulties and demonstrate spectacular failures, while long term economic behavior is rather well understood.Omerod argues, convincingly in my opinion, that the role of government in formulating policy, should be aimed at changing long term goals, rather than taking short term corrective actions.
Food for thought but not a full meal
Ormerod's basic point here, that economics is chaotic and tends to generate unpredictable changes even in the absence of external shocks, is well taken.I really liked the discussion of the ant experiment.I agree with Ormerod that there is entirely too much dependence on complex equations and theory in economics, without showing enough connection to real world data.Ormerod makes the excellent point that governments should do less intervention in trying to manage business cycles and pay more attention to the structural framework for the economy.There is no single best economic policy, since the effects of a policy depend enormously upon the context in which the policies are enacted.The book is worth reading for this analysis alone.
The book has some significant problems.The most important of these is that Ormerod believes that economic statistics such as GDP reflect economic reality.This is far from being the case. Our present economic system is engaged in a wholesale looting of presently available resources at the expense of the future.This is not sustainable on a time span of decades, never mind centuries.GDP and most other conventional economic statistics fail to take this into account. More realistic measures such as the Index of Sustainable Economic Welfare or the Genuine Progress Indicator tend to show that there has been little or no real economic growth since the 1970s. Ormerod says that trying to correct for such things as the cost of pollution and depletion of resources simply introduces a new set of arbitrary assumptions.However, in my opinion our inability to be exact hardly means that we should take zero as our best estimate of these costs.Negative externalities can be usefully ignored only when they are small compared to the total size of the economy; that is not the case today.
Ormerod dismisses those who are skeptical of the benefits of economic growth, stating that such benefits are readily apparent.It is true, of course, that when starting from very low levels increase in material standards of living can benefit people greatly.It is far less clear that in rich societies more wealth brings such great benefits.In the U.S. our material wealth per capita has increased since the 1960s.But how much better off are we, really?In the 1960s U.S. a man of modest education could afford a house in the suburbs, a non-working wife, and several children.That's the lifestyle my parents had then.Today it takes two people working to achieve that sort of lifestyle, and being able to afford several children is out of the question.I've seen research that shows families in the 1950s actually had more disposable income than typical families today.A lot of the apparent material wealth of today is fueled by mountains of debt.Certainly people are no happier today than they were then.My personal experience is at variance with what Ormerod believes is obvious to anyone.
In places Ormerod contradicts himself.For example, in the last chapter he argues that when a deep recession is apparent, measures should be brought in by government to reduce the possibility of massive job loss.I thought Ormerod's earlier point had been that this sort of tinkering by government is self-defeating. I don't understand why he thinks it would work better here.
I would suggest reading Ormerod for his good points, but pairing this work with others to address the questions he dismisses.I recommend Daly's "Beyond Growth," Kunstler's "The Long Emergency," and Diamond's "Collapse."
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