Economics is a stately subject, prim and respectable, one that's altered little since its modern foundations were laid in Victorian times. Now it is changing rapidly, thanks to the work of a small group of researchers over the last two decades in New Mexico. The story started in 1987 when two Nobel prize winners, economist Kenneth Arrow and physicist Philip Anderson, brought together 10 economists and 10 scientists for a now-famous conference at the new Santa Fe Institute. The purpose was to see how economics could benefit from physics, computer science, and biology.
That meeting gave birth to the Institute's first research program – the Economy as an Evolving Complex System – and I was picked to lead it. And that program, in turn, with many fits and starts has gone on to lay down a new and different way to look at the economy. Conventional economics, in 1987 and still today, sees the economy as something like a perfect machine, a system whose players make perfectly rational decisions in perfectly spelled out situations, with all forces matched in equilibrium. This highly ordered approach was necessary to get analytical results, but the results didn't always look very authentic. By the late 1980s and early 90's we had new mathematical tools, new ideas from cognitive science, and computational power at our disposal. The time was right to look at the economy more realistically.