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Rating: 
Summary: Scarcely informative and dissapointing
Review: I bought this book expecting something similar to Gleick's Chaos. I knew nothing about economics, but I hoped that this book would ignite my interest in the subject.
I was severely dissapointed. While Gleick surprised me on every page, offering something new and interesting often enough to make his book a non-fiction page turner, Ormerod bored me with his repetitiveness. The first chapter was worth suffering through. After chapter 3, I started skipping large sections to keep myself interested. Then after a while, I tossed the book aside and decided to write a negative review on Amazon to save others their money.
Gleick had a good balance of technical information thrown in -- I was able to investigate several concepts in chaos theory myself (writing programs to create Henon, Lorenz, DLA, Feigenbaum and Langston Ants on my computer). While I walked into Butterfly economics with the same enthusiasm for exploration, the book had no such scope for deeper study (with the possible exception of the first chapter).
I knew nothing about economics, and I still know nothing.
Rating: 
Summary: Butterfly means biology here
Review: In his first book „The Death of Economics", which I still like very much because I found it useful, Paul Ormerod compared in detail the gross failure of the neo-classical equilibrium model, the standard textbook model, compared with economic data. The book did not waste time on philosophy or ideology but presented a criticism that was and remains valid. „Butterfly Econonomics" takes a different tack. I recommend reading at least the first half of „The Death of Economics" first, followed by this one. One must first know what is the problem before one can appreciate the solution.In the preface, Paul Ormerod apologizes mildly to neo-classical economists and expresses hope that this new book should be easier for them to stomach. He knows, as we all do by now, that that school of thought does not take kindly to criticism. His expressed aim is to concentrate on complex, biological models instead of mechanical ones. In the Introduction, he announces boldly that he will abandon the idea of fixed preferences, an admiriable task! The ‚butterfly` symbolizes not deterministic chaos (the theme of the second half of his first book) but rather the ability of a biological system to interact, adapt and learn. The author`s aim is to understand the two main problems of economics: (1) Why is there economic growth, and (2) why are there business cycles? Complexity as the edge of chaos is alluded to, but the main point of chapter 1 is to introduce the reader to Alan Kirman's ant model, a variation on Brian Arthur's urn model. Here, the emphasis is on modelling the interaction of agents, or ‚agent-based modelling`, and Paul does a fine job of explaining the ant model. One wonders, as one reads the book, why econ texts are not written in such stimulating fashion rather than presenting us with a theory that doesn't work. Neither Kirman nor Ormerod present the ant model as solving any economic problem quantatitively, rather, it is discussed in the spirit of showing what is left out of ‚optimizing behavior`. In chapter 2, Paul explains why we should give up hope of short term prediction, and criticizes the efficient market hypothesis (EMH) for its failure to allow for adequate volatility. I'll come back to this and some other points below. The third and fourth chapters discuss crime and family values in terms of the personal perferences of interacting agents. Again, this stimulates the reader to imagine how one could write an econ text to make it meaningful. Chapter 5 mentions Radner, whose work (along with Kirman`s) every econophysicist should know. Roy Radner is the theorist who drove all the nails in the neo-classical theory coffin back in 1968. He showed that if uncertainty is introduced into the neo-classical equilibrium model then the agents can't locate equilibrium, so that no trades are made. In other words, uncertainty makes the model's economic eficiency plunge from 100% to zero, which is a more realistic model of the Third World (the equilibrium model is not an empirically realistic model of any real market). In the sixth chapter, business cycle forecasting is introduced and (pre-EU) the question is raised whether Italy can meet the fiscal requirements necessary to enter the European monetary union. I read about the way that Long Term Capital Management helped Italy to solve this problem via ‚creative financing` in Dunbar's „Inventing Money". Chapter 7 discusses the failure of econometrics to extract fixed rules of behavior (machine-like models, if noise-driven) from the data, and begins the discussion of the failure of the standard model (RBC, or real business cycle theory) to explain the data. Economists are correctly lambasted for ignoring empirical data in discussing the „correctness" of their models, and Paul's interesting new model of the GNP is presented in chapter 8. I found these chapters to be the most stimulating. There may still be something here for econophysicists to work on. Interacting ants (variable preferences), the theme the entire book, are presented explicitly again in chapter 9. We`re informed of the neo-classical idea of a ‚production function`in chapter 11, and economists are again properly taken to task for what I would label as Aristotelian-style philosophic postulations, while roundly ignoring the available empirical data. I find the discussion of the production function to be very useful, because Paul presents it, as he presents everything, in clear, simple language. This saves me the trouble of having to read dense, rambling economics papers to learn about that idea, although another source is Mirowski's „More Heat than Light". A very interesting thought is mentioned as a footnote on page 168, and I`ll leave it to the reader to ponder that one. In chapter 13, Paul further advises governments against too much regulation, no doubt having in mind his own UK before it was Thatcherized to the opposite limit (the US is presented as a happy counter-example, but since Reagonization we have our own severe unsloved problems). Here, the basis of his recommendation is the impossibility of accurate short-term predictions, something else for econophysicists to think about. It is true that short term prediction is useless in a stochastic system. In a deterministic chaotic or complex system, one sees only regular behavoir at short times (because of local integrability). I guess the point here is that the GNP can be modelled stochastically. But however correct ‚hands off` advice may be in many cases, I would point out that the fixing of the Thai Baht after Thailand`s financial collapse seems to provide a good counterexample to a complete ‚hands-off` policy. Also, the failure of Mexico to fix the Peso and refuse to pay international loans ca. 1997 caused nearly total economic collapse for the then-growing middle class there, who held unpayable floating mortgage loans. So there's a lot of grist here for the econophysical mill. Ending this fine little book, Paul Ormerod emphasizes the ant model as an example of „one variant of the overall complex systems approach which (is proposed) in this book". That model is claimed to be only an extension of neo-classical economic theory. Now for some comments, which I hope will prove useful. First, I see no reason why neo-classical econmists should take any solace from this book (thank goodness!): the ant model doesn`t rely on utility maximization, and is in not an extension of their model. It doesn't begin by perturbing the neo-classical equilibrium model (as Per Bak did by adding noise in „Dynamics of Money"), and seems completely unrelated to optimizing behavior. However, the ant model, while interesting and instructive, also is not complex and so references to complexity, or to complexity as living the edge of chaos seem unnecessary. Physicists do not yet agree on a definition of „complexity", but I like Chris Moore's definition, where „surprises at every length scale"are the essence of complexity. This rules out scaling and attractors, and food sources in the ant model are analogous to attractors. Here's what Moore means, I think. Chaotic and „random"/stochastic systems are simple, by this definition, not complex: the statistics of the distant future for specific classes of initial conditions can be known in advance for chaotic or stochastic systems without doing a step by step calculation. For a complex system, in contrast, there are „surprises" that prevent one from knowing any statistical distribution at long times, for a given initial condition, other than by watching the system unfold step by step. In other words, the system cannot be characterized by any statistical distribution because ‚surprises` all the way to infinite time occur (volatility and fat tails are not examples of ‚surprises`). For my taste, mutations of bacteria and viruses to new forms are the essence of complexity, physically. This kind of complexity is presumably found in markets, but where and how? We don't know how to quantify that stuff. Here's a more serious criticism. The idea of the EMH presented in the text is Shiller's notion, based on dividends discounted infinitely far into the future. This is not a useful definition because it's not falsifiable (Modligliani-Miller even teaches that dividends are irrelevant). The best definition of the EMH, the one used by finance theorists, is represented by the Martingale condition (plus, I would add, with Hurst exponent H=0), which guarantees that there are no patterns in the statistics that can be exploited for unusual profit. Markov proceses fall into this category, and have been used to describe financial market statistics, including option pricing, quite accurately (see my new econophysics book). So the EMH doesn`t rule out either fat tails or nonstationary processes, both of which are required to describe the observed ‚volatility` of financial markets. Finally, the ant model is not really ‚biology` but is instead noise driven mechanics. Why is that? Every mathematical model that can be written down is a mechanical model. As Turing showed, mathematics is a mechanical process, so whatever can be mathematicized classically is classical mechanical, in some sense. Turing's famous typewritter tape is a classical mechanical system. More to the point, financial market statistics are very accurately described by simple noise-driven ‚mechanical` models. The only known way to get away from fixed-machinery models (fixed hardware and fixed software) is to go to a neural net model that can learn from the environment, so that the connections change with time. The neural net may even be deterministic, but interaction with the environment prevents us from knowing the future, even theoretically. Finally, there is a reference to ‚value` in the text. I have described elsewhere why ‚value` is nonunique and therefore is an ill-defined notion. In context, these are pretty minor criticisms, and to answer them properly (excepting the EMH error) one could not write an elementary book. So I think, in the end, that Paul Ormerod has done a fine job of using the ant model to symbolize what's missing in the standard, boring econ texts. Again, reading this book made me think how an econ text could be written to stimulate the reader to think about solving real, empirically-driven econ problems, and if Paul doesn't do take on that arduous task then someone else eventually will. If you want to read less than the entire book, then I strongly recommend chapters 1, 7, 8, and 12. The RBC and Paul's model of business cycles are presented for the reader's convenience as appendices.
Rating: 
Summary: A fair analysis... for the 1930s.
Review: Paul Ormerod has set out to tell us everything that's wrong with contmeporary economics. Unfortunately he's both a few decades late and short on facts. As others have pointed out, the economics Ormerod is criticizing is of an old school that predates several generations of mathematical progress. Most of his legitimate criticisms have been addressed over the past few decades by economists working in areas like Rational Expectations, Game Theory and so forth. But even his discussions of classical models are somewhat off the mark. In dealing with market volatility and the efficient market hypothesis, Ormerod forgets one of the cardinal requirements of efficient markets: Free and unfettered flow of information. It has long been recognized that bubbles, whether the 17th century Tulip Mania or the modern market in Beanie Babies, are a consequence of the lack of an efficent market for price information. (One only has to look at how the rise of E-Bay as a source of global price information has affected the markets for collectables like Beanie Babies to see the truth in this.) Ormerod, like many others, also apparantly still subscribes to the notion of "path dependancy". This is the idea that the first product in a market can dominate it, even when far superior products emerge. Hence the dominance of VHS over the technically superior VHS, Windows over Macintosh and QWERTY over DSK (Dvorak Simplified Keyboard). Unfortunately each of these classic examples has been discredited: VHS triumphed because Sony refused to license Beta, and competition rapidly made VHS machines much cheaper. Apple refused to license the Mac OS, with similar results . And multiple studies failed to replicate early claims of tremendous speed advantages for DSK. We might also note that for every purported path dependancy examples there are probably hundreds of thousands of examples where a better product rapidly displaced a well-established product in the marketplace. Electric light replced gas, Compact Disks replaced LPs, DVDs are rapidly replacing VHS, radial tires replaced bias ply and so forth, even though each of these required a huge investment in new technology and greater cost to the consumer. So what we're left with is an interesting, well written book that does do a fair job of illustrating some of the complex dynamics of an economy in a non-technical way. Read and enjoy it, but be critical of his pronouncements.
Rating:
Summary: Interesting and accessible, but repetitive
Review: Paul Ormerod's "Butterfly Economics" has several points in its favor. He writes intelligently and with conviction about the flaws he perceives in economic theory, and without requiring any advance knowledge of economics beyond what one might read in the newspaper. His best contribution comes in the first chapter, when he talks about an experiment that was done with ants which revealed that the ants don't make independent choices about where to gather food -- they always have a statistical chance of being affected by the choices of other ants. His point is that conventional economic theory assumes that people are individual agents who always make the best choice, rationally and independently of other people. This is clearly an iffy assumption, when in fact people are more like ants in that we are constantly influenced by our peers. The author further compares macro-economic trends with similar graphs depicting the ants' mostly unpredictable behavior. Hence, he concludes that economic theory (and the policies that are based on economic theory) are misguided because they don't take into account the inter-relatedness of people's choices, and in a larger sense, because it is not even possible to make accurate enough predictions of future states of the economy (or even the exact current state). His wish is that governments should stop meddling altogether, and quit pretending that they have any kind of control over the economy. My main complaint is that I was expecting a more in-depth take on the subject; I should probably check out other books by the same author, because he does have a very readable and amusing style and clearly has a lot of knowledge and passion for the subject of economics. Unfortunately, Ormerod plays this one note about the ants throughout the whole book and I was losing interest by the end. I guess I was expecting deeper analogies as the book progressed, but the ants keep coming back in every chapter. It's an interesting and plausible analogy, but still. I understand that this book was written for a lay audience with not much mathematical or economic training, so perhaps this was part of the author's effort to keep the book accessible and consistent throughout. My other complaint is probably just me ... perhaps I'm too much a dyed-in-the-wool cynic and libertarian, but the points he's stressing (that governments don't have the control over the economy that they claim, and that they should stop tinkering so much) seemed pretty obvious to me already. You don't have to read the paper for too long before you notice that the economic forecasts that governments rely upon to make decisions are often drastically altered as new data is collected and interpreted. It's not a big leap to say that all their tinkering is done to present the appearance of doing something, without having actual predictable outcomes. On the other hand, you don't have to be an economist to know that American presidential elections are almost always decided by the economy (well, except for the last one), because voters blindly give credit or blame for the state of the economy to whatever party is in power. So maybe more people should read this book to get a better perspective on the limits to the power that their government actually has. "Butterfly Economics" provides some nice counter-evidence to the idea that the government even knows what direction the economy is going in at any given time, much less able to determine a course of action that will make the economy "better". "Butterfly Economics" is okay as a starting point, but I would recommend reading it and then going on to read "The Tipping Point" and books on chaos theory and cellular automata if you're interested in more information about the mechanics of the ant trends Ormerod talks about. More in-depth critiques of economic theory I'll have to find on my own (although any suggestions would be welcome).
Rating: 
Summary: Readable and Good
Review: Paul Ormerod's critically acclaimed work pinpoints the failings of traditional economics and government policy making by demonstrating the complex nature of economies and societies. You won't find a single dry, dusty page in this dazzling book, which serves as a primer to the latest thinking in 21st-century economics. Ormerod's premise: Standard economic theory fails to take into account the fact that people are influenced in their decision making by other people. This interaction forms the foundation of his butterfly economics. Ormerod keeps you turning the pages and brings the subject vividly to life. We [...] recommend this newly penned classic to all readers.
Rating:
Summary: A readable analyis of what's wrong with conventional wisdom
Review: There is a massive gap between the predictions of conventional economists and the real world. The economy seen as a gigantic, intricate machine with buttons and levers is the orthodox picture. Economists, and their numerically able cousins the econometricians, expend increasing efforts to develop ever more refined models to try to explain the observations, with diminishing returns. The optimism doesn't diminish. Along comes a book about ants, but called Butterfly Economics. It really is that simple: the agents in economic and other human systems act more like ants than as rational optimisers moving along iso-utility curves. This book demolishes the conventional wisdom that underpins mainstream economics and sketches out the complex adaptive system paradigm which provides a much more accurate picture the world as it really is. Butterfly economics does not attempt chase every rabbit into every hole, but it does establish, very persuasively, that new insights can yield better models to describe aggregate human behaviour. For the intelligent layman this is a great introduction to the exciting results being obtained by researchers in the new science of Complexity.
Rating:
Summary: (4+) The Importance of Feedback and Chaos in Economic Theory
Review: This book consists of a discussion by Paul Omerod of the obvious failings of conventional economic theory. He has attempted to utilize a framework understandable to members of the general public; in some respects, the author succeeds admirably in his attempt but as he himself comments in the introduction, on occasion simplicity is sacrificed to the necessity of incorporating complex mathematical models and statistical constructs (with the most advanced math thankfully relegated to the appendices). Omerod's conceptual framework is that mechanistic notions of the economy (and social analysis in general) may have been necessary simplifications in the past given the limited experimental research done in many areas and the lack of computational power on the scale available to us today, but they are at best useless in today's increasingly interdependent world and in fact often are counterproductive. The book posits that "economies and societies are not machines. They are more like living organisms. Individuals do not act in isolation, but affect each other in complex ways." Thus, BUTTERFLY ECONOMICS is meant to capture the author's view of society as a living organism; the conclusion implicit in this conceptualization is that the inherent unpredictability of economic systems means that governments' attempts to "manage" short term economic fluctuations are completely misguided . This text is a well developed exposition of a very important topic that deserves to be better understood, and I found myself frequently writing notes in the margin and underlining worthwhile facts and ideas. I highly recommend the book for readers interested in a systematic critique of conventional economics, especially the extreme reliance on inappropriate mathematical modeling and the often misplaced faith in such models by politicians and their agents. The author's conclusion is that the ability of governments "both to make reasonably accurate forecasts and to understand the consequences of policy changes designed to alter the outcome is largely illusory". Since this conclusion corresponds with both the empirical data that I have observed and my philosophical inclinations, I was very pleased with the coherent argument which this book presents. Nevertheless, I felt that the framework which he used in attempting to provide an aura of scientific rigor in support of his premise was both a little distracting and left the book open to the charge of being simplistic (although that would paradoxically mean that the systems are even more complex than Omerod claims). While the title utilizes the butterfly analogy popularized by chaos theory and probably thus attractive and recognizable to readers, his book actually extensively relies on a model based on studies done of ant populations in order to incorporate both the notion of biological models and also scientific knowledge concerning the complexity of modeling the activity of interacting agents and the counterintuitive results that often occur. Thus the book should more accurately be subtitled, HOW DOES ANT BEHAVIOR ILLUMINATE ECONOMIC PRINCIPLES. The final chapters of the book examine why long term growth is apparently fostered by capitalist industrial economies with a large free market component but not under other types of economic systems, and why private businesses are much better at creating jobs and wealth than are governments (which provide the necessary macro-environment). His explanation is in contrast to the concept of "growth factors" or "positive externalities" so often adopted as explanatory factors in economic literature. And he accurately distinguishes between short and long term predictability, and between fluctuations which simply represent random noise as opposed to significant deviations from trend. Adaptation and evolution are necessary elements of any cohesive theory, but devilishly difficult to accurately incorporate into models with any degree of predictive accuracy. While I found this book illuminating and certainly believe that our economies would benefit and growth would be enhanced if its insights were more widely understood (especially by politicians or more importantly their constituents), I do have some criticisms. First, it seemed strange to me that either Omerod was not familiar with or didn't acknowledge the contribution to the conceptual framework which he espouses of Michael Rothschild. Rothschild's book BIONOMICS:ECONOMY AS ECOSYSTEM comprehensively discussed the biological analogy which Omerod finds so convincing. Second, while a topic somewhat peripheral to this book, he also does not discuss the recent advances in experimental economics (as evidenced by the award of the Nobel Prize to Professor Vernon Smith) and the insights which this discipline might provide to the development of his theory. Third, he attempts to accomplish both too much and too little in the book. I think the theoretical statement and implications should be more completely delineated rather than organizationally being so completely interwoven with what is essentially just explanatory and supporting detail. Fourth, he falls into the common trap of assuming that most economic statistics are in fact a good approximation of reality, when many times subsequent restatements cast doubt on their accuracy. Last, in Chapter 5 he uses an incorrect illustration which shows that his academic training is not in mathematics. When discussing what is referred to as the Monty Hall problem (from the game show), he gives the wrong answer to what he admits is a very simple problem. Thus he inadvertently illustrates how important the correct statement of any problem is in arriving at the conclusion. The simple answer is correct, but he rejects it because he doesn't understand conditional probabilities and antecedent events in the illustration utilized. (Someone in England has clearly published an incorrect article on this subject, since quite surprisingly the exact same explanation was also used incorrectly in THE CURIOUS INCIDENT OF THE DOG IN THE NIGHT TIME, another book by a British author.) As Mark Twain observed, the difference between fact and fiction is that fiction has to be plausible. I recommend this book if you are interested in differentiating real facts from plausible fiction. My only caveat is that it is not a fast or easy read. Tucker Andersen
Rating:
Summary: A new economics, based on complexity.
Review: This is a brilliant successor to Ormerod's previous Death of Economics. It lucidly and wittily demonstrates the fallacy that economic forecasts can predict. More important, it further develops his economic theories based on complexity. His conclusion: "governments should do much less .. detailed short-term intervention .. and [spend more time] thinking about the overall framework.' Ormerod is rare (I am tempted to say unique) among economists. He uses clear and straightforward English - and he has a devastating wit. Assuming that you bring yourself to read books on economics, when was the last time that one caused you to laugh aloud? Butterfly Economics combines clear English, humour and the capacity to translate the realities of human behaviour into a credible explanation of the behaviour of economies. It is very readable, even if you are not really interested in economic theory. The importance of the book and its predecessor is that they provide a better explanation of what is going on than do conventional explanations. It explains why so much of government economic policy produces unintended side effects and it also supports the arguments of Brian Arthur and others that initial inequalities tend to become magnified. Behind the simple explanation is some quite rigorous analysis based on the mathematics of complexity, but this is kept decently in the background for the sake of the general reader. Whereas the primary focus of attack in The Death of Economics was the assumptions underlying 'general equilibrium theory' - the cornerstone of economics and economic policy - Butterfly Economics concentrates on one aspect of human behaviour - choice. It shows what happens when one relaxes the unreal assumption that buyers form their preferences independently and are not influenced by the behaviour of others.
Rating:
Summary: Chaos Theory Explained in Simple Terms
Review: This is clearly written and concise non-academic attempt to explain the chaos of economics. The author does not mire the reader down in economic equations. He simply describes what is occurring in an easy to comprehend manner. His general theory posits that we can not understand how economies work - human actions are just too complex and chaotic to model. Because we can not accurately model these economies, we can not make determinations about the consequences of actions taken to ameliorate short-term economic problems. The consequence is that governments must focus their policy efforts on the long term and avoid intrusions in the market to correct short-term problems. The author also explores the connection between what is happening in society and economic trends. In an easy to understand example, he uses ants with two choices of food placed equal distance from their home to explain what he means.
Rating: 
Summary: Trapped in the 1970s
Review: This isn't a bad book. It is well written and I would recommend that read it to be apprised of the points it espouses. However, it is very incomplete, if not naive, to the body of economic literature that has been produced by both academic and armchair economists and mathematicians since the 1980s. Economists are very aware of the strictures of their assumptions and have forever been relaxing them in producing better models. There are great advancements in Game Theory and alternative modeling theories. For several decades economists have been incorporating , cognitive theory, evolutionary psychology, neural networks, chaos etc. into their theories. In any case, much of foundational micro theory econometrics is still very useful for policy studies. The problem only arises when people use the initial assumptions of economics as a defense of their ideology and their belief that one Political Economic system is better than another. Those same assumptions that are used for armchair debates have little place or use in the economics that is practiced professionally. For more info on the how aware economics is of its quasi-shortcomings and on how broad and effectual the horizon is for economic theory read poke your nose into some real Journals. A great starting place is the 1994 American Economic Review. Particular authors who produce both lay and academic literature would be Daniel Khaneman, Richard Thaylor, W Brian Arthur, George Akerloff, Stiglitz, Gary Becker. In summary, economics is not "flawed to the core", especially in any practical sense. It is actually becoming more powerful than ever since it's given up some of its "physics envy" obsessions. Arnie
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