The End of Theory: Financial Crises, the Failure of Economics, and the Sweep of Human Interaction

Quantitative Finance, Volume 18, 2018 - Issue 3

The recent financial crisis sparked a debate on the usefulness of the neoclassical economic paradigm to understand and predict financial crises. The depression of the thirties was also a time of re-thinking macroeconomic modelling and marked the rise of Keynesianism in economics. Bookstaber’s The End of Theory is a frontal attack on the usefulness of the current economic paradigm based on market efficiency and rational expectations to predict financial crises. He argues for a radical change in economic modelling with agent-based models (ABM) replacing the current neoclassical model and its many versions.