Butterfly Economics: A New General Theory of Social and Economic Behavior

by Paul Ormerod

In 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.

Genres: Economics, Nonfiction, Social Science, Business, Sociology, Finance, Mathematics

217 pages, Paperback

First published January 1, 1998

About the author

Paul Ormerod was the head of the Economic Assessment Unit at The Economist and the director of economics at the Henley Centre for Forecasting in England. He has taught economics at the universities of London and Manchester, and was a founder of the consulting firm Volterra. He lives in London.

Reviews

[Jacob]

Butterfly Economics is an interesting book that introduces the theories and thoughts of Ormerod on economic behavior. His entire first chapter is dedicated to an experiment involving communication between ant which he converts to an elegant theory of interacting agents that stock investors should heed. Using economic and stock market data from the past century, Ormerod's braided new ideas combine the disciplines of psychology and economics to describe how the behavior of humans affects those around them in a cyclical pattern of chance and coincidence.

Book review at www.blackoildisease.com/bookshelf.html

[Crystal John]

Butterfly Economics: A New General Theory of Social and Economic Behaviour (1998) is a foundational book in complex systems economics by British economist Paul Ormerod. Basically, Ormerod argues that mainstream economics tries to be like physics – using neat equilibrium models where everything balances. Standard economics assumes individuals act as isolated, fully rational decision-makers whose actions converge toward static equilibrium. People do not, according to Ormerod, make decisions in a vacuum; they adapt based on social signals, peer behaviour, and network influences. Economies act more like biological ecosystems (e.g., ant colonies or natural habitats) than predictable, closed mechanical systems.
In reality economics behaves like a complex living system where a tiny change can have a massive, unpredictable effect – "The Butterfly Effect" in chaos theory. The areas he looks into are business cycles, consumer behaviour and policymaking.

A very interesting read!

[Ben Peyton]

I didn't enjoy this one as much as Why Things Fail but it is still a solid read. One thing I like about Oremerod is he does a good job showing that governments are bad at picking the right policies and probably worse at fixing them but that fact doesn't stop him from becoming a zero-government libertarian. He admits that we need government in modern society to be the referee in a lot of situations. It's just that modern governments are bad at picking policies and then need to get better at it.

This book is about way more than just public policy decision-making. It's just something that hits close to home for me.

[Lifu Tao]

A very intriguing and interesting read. It definitely helps to have a math and business/economics background to understand the content.
I recommend this book to anybody who’s wants to learn consumer behavior at a macro level or macro-economics in general.

[Kandachamy Vijayakumaran]

It is rare to find economists courageous enough to tell the truth straight. The difficulty of modeling human behavior is well understood and less talked about. Human behavior, like The fluttering of the butterfly creates a hurricane at another place, can create changes of unpredictable magnitude.

[Sofia]

gonna check out some summary videos because i don't have the ability to read a non fiction book physically

[Collin]

This book started out interestingly enough with the little morsal of simile that the economy is like an ant colony and preceded to explain a study about ants going to seperate, but equal piles of food and why that is like business cycles. Now that doesn't sound that interesting when I explain it, but it is an eyebrow raiser in the book. Well it goes on and by the late second half of the book I found myself wishing for the end and skimming. Taking a line from another review, it gets a little boring and tedious. The social, behavioral economy parts were good, but it got a bit dry and academic at the end for my tastes.

[Tom]

It would be tough for me to recommend this book, although it had some interesting observations. The basic premise is that contrary to the treatment of consumers in classical economics, consumers’ preferences are not fixed and that consumers interact in ways that modify preferences (thus, in effect, changing a price vs. demand curve). Of course! Actually, "Tipping Point" makes the same point much more clearly and much more substantively. The analogy that he makes to ants’ choosing between two identical piles of food at identical distances from the ant hill is good; however, it becomes very much overused by the halfway point in the book.

[Grim-Anal King]

It seems I'm heading backwards through Ormerod's books so there was a little repetition for me but this proved another decent dismantling of some economic shibboleths, seemingly nudging the reader towards a more rational economic approach.

[Kelly Reid]

A bit hard to get through, but had some good ideas. Reading it in 2013, not 1998 has benefits and drawbacks. The chapters with tons of scatter-plot graphs weren't my thing, but if you're really hardcore into math, you will like it.

[Andreia]

I find myself thinking about the ant experiment very often, in particular while watching political and financial news.

[Anthony]

A little dry and tedious but a good introduction to behavioral economics and finance.