Overview

An in-depth look at how to account for the human complexities at the heart of today's financial system Our economy may have recovered from the Great Recession--but not our economics. In The End of Theory, Richard Bookstaber discusses why the human condition and the radical uncertainty of our world renders the standard economic model--and the theory behind it--useless for dealing with financial crises. What model should replace it? None. At least not any version we've been using for the past two hundred years. Instead, Bookstaber argues for a new approach called agent-based economics, one that takes as a starting point the fact that we are humans, not the optimizing automatons that standard economics assumes we are. Bookstaber's groundbreaking paradigm promises to do a far better job at preventing crises and managing those that break out. As he explains, our varied memories and imaginations color our economic behavior in unexpected hues. Agent-based modeling embraces these nuances by avoiding the mechanistic, unrealistic structure of our current economic approach.Bookstaber tackles issues such as radical uncertainty, when circumstances take place beyond our anticipation, and emergence, when innocent, everyday interactions combine to create sudden chaos. Starting with the realization that future crises cannot be predicted by the past, he proposes an approach that recognizes the human narrative while addressing market realities. Sweeping aside the historic failure of twentieth-century economics, The End of Theory offers a novel and innovative perspective, along with a more realistic and human framework, to help prevent today's financial system from blowing up again.

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9780691169019

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Reviews

The End of Theory does hold some important lessons for financial markets today. It also shows [Bookstaber] to be someone who adds a fair bit of humility into his models -- which may be the best reason to read his book. --Rana Faroohar, Financial Times

The End of Theory holds some important lessons for financial markets today... According to Bookstaber, it's time to stop tweaking a 150-year-old model that seems to be getting worse, not better, at predicting crises, and embrace something totally new. Finally, and perhaps most usefully, he challenges the economics profession itself, where too many experts still have way too much faith in their own mathematical infallibility. --Rana Faroohar, Financial Times

Author Information

Richard Bookstaber has overseen risk management at investment banks Morgan Stanley and Salomon Brothers, as well as major hedge funds such as Moore Capital and Bridgewater. He has also held positions at the U.S. Treasury, and is currently at the University of California. He is the author most recently of A Demon of Our Own Design (Wiley).

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