J. Doyne Farmer: Pushing the Boundaries of Prediction

“I’m an outsider,” he says. “As a physicist approaching economics, I think about things differently than how somebody who did their undergraduate and graduate work in economics would think about things. And so many of the things I’ve done have not been well-received by the mainstream.” 

It’s a tension Farmer has felt since he was a student in the 1970s. He recalls one funding request in particular that was denied: “I was told that, because I was working in a field that was not well defined, there was no hope for me to finish graduate school.” Farmer worried that if he couldn’t find funding, ironically, their prediction would be accurate. 

“The Hertz Foundation was using a different set of criteria, looking for different kinds of people,” says Farmer. “They were willing to support someone who would not have been supported by the masses.” In 1978, Farmer was awarded a Hertz Fellowship. In 1981, he finished graduate school. 

His thesis was titled Order Within Chaos, which might also describe his career. Although Farmer’s path did not follow a straight line—from the counterculture at UC Santa Cruz to the casinos of Vegas, from an Oppenheimer Fellowship at Los Alamos to Wall Street—there has always been a common thread. 

“Curiosity,” Farmer says. “I’ve always been fascinated by what are now called complex systems, where the question is more about the way matter organizes itself, the way the world organizes itself, rather than material mechanical properties of nature.” 

Farmer is comfortable with complexity. “There are some things we can predict and some things we can’t. The art of being a good scientist is to know the difference.” 

Farmer helped found a new field called complexity economics. Predicting the natural world is one thing, he points out, but it’s quite another thing to predict the human behavior that underlies economics. 

“Up until about 20 years ago, mainstream economics assumed that human beings are rational,” Farmer says. “There is now a thriving branch of economics, called behavioral economics, exploring the ways in which rationality fails. But mainstream economics has not yet succeeded in creating a scientific framework that can properly incorporate bounded rationality. Our approach, in contrast, assumes bounded rationality from the outset.” 

Farmer is a strong believer that financial markets are highly imperfect. “If we approached understanding them from a different point of view, we could better understand their imperfections and redesign them—or redesign the rules they operate within—to make them function more effectively.” 

Having lived through the 1987 stock market crash and the 2008 housing market crash, Farmer is keenly aware of the cost of relying on outdated approaches. So while he may be considered an outsider, an outsider’s perspective might be exactly what’s needed. Today, Farmer is a Baillie Gifford Professor of Complex Systems Science at the Smith School of Enterprise and the Environment at the University of Oxford. He is also the Director of Complexity Economics at the Oxford Institute of New Economic Thinking—which he helped create in the wake of the 2008 crash— pursuing non-traditional collaborations to help create a financial system that is less prone to crises. 

Farmer believes the future of economics is agent-based modeling, which aims to simulate the myriad interactions of agents (think households, financial firms, governments) to understand and ultimately predict the behavior of a complex system. These types of models are widely used in fields like biology, sociology, and epidemiology, but their application to economics is new—and there is a lot to figure out. 

“I still have huge ambitions,” says Farmer, when asked what’s next for him. He wants to apply agent-based modeling to not just the macro economy, but also to technological change and innovation, and the economics of climate change. Farmer acknowledges that he is a provocateur, but says that’s what allows him to do “good science.” 

“What we are doing is a revolution,” he adds, “because the underlying assumptions that the theory is built on are completely different from those of conventional economics. Utility maximization has been a cornerstone of economics since the late 19th century. We are abandoning that assumption, which is a big deal.” 

“I like the feeling of being a pioneer,” Farmer says. He mentions a post on his website that articulates what adventures remain in the 21st century. All the mountains have been climbed; all the oceans have been crossed. “But in the modern world, science is perhaps the biggest adventure.” And J. Doyne Farmer is, at heart, an adventurer.