Paul Ormerod’s Butterfly Economics (1998) represents one of the more accessible and provocative attempts to challenge the orthodoxies of mainstream economics. Drawing inspiration from complexity theory and the natural sciences, Ormerod argues that economies should not be understood as mechanical systems tending towards equilibrium, but rather as complex adaptive systems in which small changes can have disproportionately large effects. The title refers to the “butterfly effect” in chaos theory, where the flap of a butterfly’s wings might set off a chain of events culminating in a hurricane. In economic terms, this metaphor captures the idea that minor, seemingly insignificant decisions by individuals or firms can cascade into large-scale, systemic outcomes.
Read MoreThe Nash–Cournot equilibrium is one of the foundational concepts in industrial organisation, shaping how economists think about competition in oligopolistic markets. It builds on the work of Augustin Cournot, who in 1838 published his seminal Researches into the Mathematical Principles of the Theory of Wealth. Cournot considered the case of two firms (a duopoly) producing a homogeneous good, each deciding how much quantity to supply. He showed that each firm’s optimal output depends on its expectations of the other firm’s decision, and that the interaction of these strategic choices leads to a determinate outcome where neither firm has an incentive to deviate. This equilibrium, rediscovered and reformulated in the twentieth century with the formalisation of game theory, came to be understood as a specific instance of a Nash equilibrium, named after John Nash, who generalised the concept of mutual best responses in strategic settings.
Read MoreThe representative agent has long been a central device in modern macroeconomics, providing a simplification of economic behaviour by collapsing the diverse decisions of millions of individuals into the choices of a single “stand-in” actor. Its roots lie in neoclassical economics, where general equilibrium theory required tractable models of consumer and producer behaviour. By assuming a single household and a single firm, theorists could impose rational optimisation and equilibrium conditions without the complexities of heterogeneous agents and institutions. This abstraction gained prominence in the postwar era, particularly through the development of dynamic stochastic general equilibrium (DSGE) models, which crystallised around the representative agent as their core behavioural assumption.
Read MoreEvolutionary economics emerged in the late twentieth century as a heterodox response to the limitations of neoclassical theory. Richard R. Nelson, together with Sidney G. Winter, pioneered this approach in An Evolutionary Theory of Economic Change (1982), offering a dynamic framework for understanding innovation, firm behaviour, and institutional development. Their work remains central to the study of technological change and long-run growth.
Read More