Why did VHS, an inferior video recording technology, succeed in the marketplace, driving the superior Betamax out of business? Why do big-budget, acclaimed movies sometimes flop at the box office, while low-budget, idiosyncratic films become huge hits? The answers to these questions, says Paul Omerod, remind us that economics is a science based on the workings of human society, as unpredictable an entity as there is. "Conventional economics is mistaken," claimes Omerod, "when it views the economy as a machine, whose behavior, no matter how complicated, is ultimately predictable and controllable."
In this cogently and elegantly argued analysis of why human beings persist in engaging in behavior that defies time-honored economic theory, Omerod 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 global marketplace.
Combining sophisticated economic analysis with a gift for lucid explanation, Ormerod deepens and expands upon the points he made in 1994's The Death of Economics. He starts with an elegant critique of conventional economics, arguing that the prevailing thinking mistakenly ignores insights from other fields (notably biology, psychology and literature) and that practitioners of the dismal science pay too little attention to empirical verification and see the world through narrow theoretical blinders. Ormerod, head of the economic assessment unit at the Economist, then presents his alternative approach, Butterfly Economics, an interdisciplinary view that takes its cues from sources as diverse as ant behavior and the mathematics of chaos theory. The mathematics, relegated to three appendices, are simplified to a high-school algebra level. But Ormerod's argument is easy enough to follow without the numbers as he applies Butterfly Economics to explain why VHS beat out Betamax to become the VCR standard and why low-budget movies often outperform the most expensive Hollywood features. At the core of Ormerod's thinking is the observation that human behavior is not nearly as neatly predictable as prevailing economic models assume, that economic life is more like a living organism than like a machine. His book is amusingly written, and every page offers surprising facts or strikingly new ways of looking at well-known facts. Anyone who likes to think about people and how they act will find much of interest, and probably something to love or hate, in this book.