introduction
Chapter 1: The Illusion of Equilibrium
Chapter 2: The Curious Machine
Chapter 3 Notable Exceptions
Chapter 4 Natural Rhythm
Chapter 5: Models of Human Behavior
Chapter 6: The Ecology of Trust
Chapter 7: The Perils of Efficiency
Chapter 8: Trading at the Speed ​​of Light
Chapter 9: The Decline of Idols
Chapter 10 Prediction
Acknowledgements / Notes / Index

Mark Buchanan, evangelist of complexity science, predicts tomorrow's economic weather.
Economics, break free from the illusion of equilibrium!

Checking the weather on the morning news while getting ready for work is a part of modern life.
"The weekend news said it's going to rain today. Will it really?" "When will this damn monsoon season end?" "A typhoon is coming next week? Then I'll have to postpone my vacation." If you overslept and didn't have time to watch the news, you might open a smartphone app that tells you the weather on your way to work.
Of course, there are times when I bring an umbrella with me even though the forecast says there's a 60 percent chance of rain, but I never get to open it and end up going home, but it's rare to be devastated by a weather forecast that's so wrong.
Modern meteorology has gone beyond accurately predicting seasonal changes and the resulting weather phenomena for tomorrow, and now boasts a high level of predictive power that allows it to forecast detailed weather for each region and time zone.

The weather forecast, which was like a shepherd boy's job just 100 years ago, has become as accurate as it is today due to a tremendous upheaval that shook the foundations of meteorology: the adoption of a new science called complexity science.
In the past, meteorology viewed weather as a state of equilibrium in which constant conditions circulate and persist, making it difficult to properly understand the constantly changing weather. However, as meteorology accepted the dynamics of weather, which states that small changes in various climate factors such as the amount of sunlight, rainfall, wind direction, and humidity can create huge storms or long periods of clear weather, the accuracy of forecasting increased.
The moment we break free from the illusion of a "state of equilibrium" and look at meteorological phenomena from the perspective of a complex system, a new meteorology with a remarkable increase in predictive power and reliability is born.

Mark Buchanan, a former editor-in-chief of the world-renowned scientific journal Nature, a science writer with both scientific expertise and popular appeal, and a complex systems scientist, boldly explores the limitations and crises of modern economics through the example of meteorology in his new book, Forecast.
He argues that modern economics, which has clearly revealed its inability to properly predict economic situations and financial market fluctuations since the 2007 global financial crisis, is in the same situation as meteorology 100 years ago, and that just as meteorology dramatically improved the accuracy of weather forecasts by accepting the dynamics of climate factors, economics can also regain its predictive power and trust only when it boldly breaks free from the illusion of market “equilibrium” and “stability” and adopts complexity science.

In his previous work, "Social Atoms," Mark Buchanan explored various phenomena occurring in human society through the lens of complexity science. In his new work, "The Economy of Tomorrow," he narrows his perspective to economic phenomena and examines markets and various human economic behaviors.
"Social Atoms," which simplifies social phenomena, converts them into statistics, and presents a variety of previously unconsidered insights, was selected as a CEO-recommended book by the Samsung Economic Research Institute (SERI) and received great response in Korea as an introductory book to complex systems science.
Recently, he has been contributing articles analyzing the limitations and solutions of modern economics to various media outlets such as The New York Times, Bloomberg News, Harvard Business Review, and Wired, widely publicizing the research results of complexity science that provide new insights into various problems in economics and finance.
He also actively communicates with the public who seeks to overcome the limitations of conventional economics through his blog, “Financial Physics (http://physicsoffinance.blogspot.kr)” and his personal blog.
The latest achievements of Mark Buchanan, an active guru of complex economics, are summarized in this book, "The Economy of Tomorrow."


Beyond the mainstream economics that is based on classical physics and that the market is fundamentally stable in supply and demand and self-recovers even if there is temporary chaos, let's look at the economic weather of tomorrow predicted by Mark Buchanan, an evangelist of complexity science, in his new book, "Tomorrow's Economy," which seeks a new turning point in economics through complexity science, which is a collection of various cutting-edge scientific achievements. Let's take a look at economic physics/financial physics, a new field of study that has recently emerged in the economic and financial world.


We will never understand the economy and markets until we overcome the foolish notion that, unlike almost every other complex system in the world, they are inherently stable and free from any internal volatility.
It is time for us to begin learning about socioeconomic weather, classifying its storms, and learning how to prevent them or protect ourselves against them when they come.
As we will explore further, the concepts and ideas needed to do this, or at least to get started on it, already exist in other scientific fields, particularly physics.
The idea of ​​“financial physics” is not at all unfamiliar, it is perfectly natural, and perhaps even inevitable.
― In the text

How to survive in a rapidly changing global market?
De-equilibrium economics reimagined with cutting-edge scientific achievements!

Before World War I, meteorology, which had not adopted the principles of dynamics and physics, simply accumulated variables such as pressure, wind speed, and humidity to find statistical patterns, but it consistently failed to make predictions.
It was to the extent of blindly searching through past weather data to find a day with similar variables to today, and then claiming that tomorrow's weather would be the same as the day after that similar day.
From this perspective, the weather was a stable world that always repeated certain patterns.

Weather forecasting, which predicts the weather as we know it today, became possible when meteorology accepted the dynamic perspective that small changes in the elements that make up the climate are gradually amplified through interaction with other elements, resulting in large changes.
The recognition that a massive storm is not a sudden, unexpected phenomenon that strikes one day, but rather a predictable event that can occur through the accumulation of minute changes in wind direction, humidity, and wind speed was the foundation for the rapid increase in accuracy of modern weather forecasting.


This book, along with various research findings from the latest science, reveals that the equilibrium market advocated by modern economics is repeating these misunderstandings of past meteorology.
Therefore, it is argued that today's economics must also acknowledge the complex interactions of these various elements that make up the market and the large and small changes they bring about, that is, the non-equilibrium nature of the market.
Because it is the beginning of increasing the predictability of the market and the various factors that make it up.
The reason the author chose the original title of 『Tomorrow's Economy』 as 'Forecast' can be said to be to remind us of the case of meteorology, which achieved rapid progress while acknowledging the non-equilibrium nature of the system.
We must now break free from the illusion that the market in which we conduct economic activities, unlike other natural systems, possesses a stable equilibrium that can maintain a stable state on its own.
Natural sciences, including physics and chemistry, have actively embraced inequilibrium and instability in modern times, achieving the rapid progress we see today.
The remarkable advancement in weather forecasting accuracy over the past century is a prime example.
This book emphasizes that the starting point for a post-equilibrium economics that can predict the rapidly changing global market is to recognize the complexity of the market, which is made up of numerous transaction entities, and the positive feedback phenomenon in which small changes within it frequently lead to rapid changes.

Making wise policies requires unconventional thinking.
Disequilibrium thinking comes from physics, chemistry, biology, ecology, atmospheric science, and geology.
The greatest shift in scientific thinking over the past 50 years has been the move to understand out-of-equilibrium systems.
It displays a rich dynamics, never settling for any sustained state of equilibrium, and constantly provoking surprises and novelties.
― In the text

The future of volatile markets as predicted by meteorology
Complexity economics: Overcoming the Limitations of Mainstream Economics

In this book, Mark Buchanan points out the obsession with the 'equilibrium' of the market as the reason why modern economics has failed to predict changes in the market, including the global economic crisis.
The failure of today's economists to predict recent events like the bank runs, bank failures, and flash crashes is not because they are rare and temporary, as they claim.

For today's economists, market chaos and consumer irrationality never existed in the first place.
To them, the market is always a gathering of rational consumers, trading freely according to supply and demand.
Therefore, it is believed that disruptions such as price surges or crashes are temporary, and that a stable equilibrium will eventually persist.
For these economists, derivative financial products, through which banks, insurance companies, hedge funds, and others sell their risky assets to one another, were more than worthy of praise as a rational means of trading that spreads and shares risk and reinforces market equilibrium.


The concept of natural science that modern economics most rejects is ‘positive feedback.’
Mark Buchanan argues that the rapid expansion in size and scope of market shocks today can be explained by this positive feedback.
This term, which refers to the process by which small fluctuations given to a system become increasingly larger, has long been used importantly in science, especially meteorology.
This book shows how derivative financial products, when exposed to the phenomenon of "positive feedback," can become destructive weapons.
This case is significant because it simultaneously highlights the complexity of the modern global market and the problems inherent in modern economics' dogmatic and superficial approach to interpreting it solely in terms of equilibrium.

A representative example is the subprime mortgage, a type of housing loan for low-credit borrowers that triggered the global financial crisis.
The purpose of pooling these loans and converting them into derivative financial products and selling them was to diversify risk.
As these scattered loan products began to fail one by one, they became a conduit for the credit crisis to rapidly spread to numerous financial institutions.
Instead of reducing the risks, the fragmented risk has served as a catalyst for explosive amplification of crises around the world.


Transactions that have a decisive impact on our economy and wealth are happening so quickly and without our understanding.
This is not simply a question of efficiency.
This book points out that the instability of complex markets is worsening day by day as a result of blindly believing in the myth of market equilibrium that has been passed down since Adam Smith's "The Wealth of Nations."
The illusion of self-regulation and equilibrium in a market composed of rational transactions, combined with the rapidly evolving information and communication technology, has resulted in today's hyper-short-term trading and flash crashes driven by positive feedback, disconnected from human cognitive abilities.
This shift in perception toward a de-equilibrium economy is only possible if we accept the market as a complex system comprised of diverse, different actors.
We can no longer anticipate the continued instability of modern financial markets with stopgap measures, such as partial regulation of derivatives markets based on the conventional view of rational consumers and equilibrium markets.
This is why the book's recognition of the problem—that the invisible hand, oblivious to human limitations, can no longer guide us to our best—is so crucial.


Although it is impossible to know the future perfectly, it is quite possible to understand the future in part.
Forecasting and foresight play a vital role in shipbuilding, satellite launching, and climate science, all of which are crucial in a world where accurate prediction is impossible.
- In the text

The market is also a part of nature and humanity!
A new world of cutting-edge science that clearly explains the changes in the modern market.

Breaking away from mainstream economics, which adheres to markets separated from the natural world, the complex economics presented in this book freely utilizes cutting-edge research results from natural sciences, including physics, biology, and chemistry.
And the characteristics of various economic entities and the impact of their interactions on the market, which had been overlooked by mainstream economics that had emphasized only rational consumers and stable markets, are gradually being revealed.
This book confirms the dawn of an era of financial science that places what were previously dismissed as incomprehensible, unexpected variables at the heart of the market.

The relationship between ultra-short-term trading and the speed of human cognition and judgment best illustrates the nature of the complex economics presented in this book.
Let's take a look at the flash crash that began on May 6, 2010, at Wardell & Reed, an investment firm in Texas, USA, which is frequently mentioned in this book.
The company carefully segmented its $4 billion position in the futures market to sell off the Greek debt crisis, but many automated trading programs overbought the sale.
And when programs belatedly realized this fact, they hastily resold the futures, causing a chain reaction in which the futures and stock indices plummeted together.
On that day, the Dow Jones Industrial Average lost 9.2 percent of its market capitalization in just a few minutes.

This book analyzes that these market shocks are occurring frequently due to the combination of the speed of ultra-short-term trading, which defies human cognitive speed, and positive feedback.
In the flash crash that started at Wardell & Reed, short-term traders accelerated the market collapse by executing 27,000 contracts in just 14 seconds.
The major problem with this type of ultra-short-term trading, which takes place in less than a second, is that it virtually ignores human cognitive responses.


Complexity economics, which incorporates research from modern biology, presents research results showing that 'one second' serves as a standard for human momentary judgment.
The minimum speed at which chess grandmasters can read moves and the minimum speed at which car drivers can perceive and react to changes in the road are both within one second.
Today, ultra-short-term trading, which takes place in up to a millionth of a second, is virtually beyond our control.
The positive feedback loop, where small changes accumulate and amplify themselves, plays a crucial role in the rapid collapse of markets caused by these short-term trading errors.
Therefore, the question raised by this book is that the short-term market fluctuations we see today are not unpredictable sudden events, but rather fundamental properties that we must anticipate and control.
Beyond structural characteristics like ultra-short-term trading, biological factors that influence human trading behavior also provide important grounds for viewing today's markets as complex systems.
The book cites neuroscience research examining the effects of testosterone, a stress hormone that promotes persistent exploration, boldness, and a preference for risk, on the performance of investment bankers.
According to the findings, these investment brokers performed best on days when they recorded high testosterone levels in the morning.
The impact of aggression arising from biological metabolic reactions, as well as individual rational judgment and agility, on the market is a factor that has not been addressed in conventional mainstream economics.
The authors suggest that if a network were created where market participants could wear patches that transmit their physiological data, and this information would be automatically transmitted to a database, we might gain a clearer understanding of the hormonal fluctuations that influence financial groups.
While this idea is certainly provocative, it is a refreshing proposal from complexity science for modern economics, which only discusses the legitimacy of equilibrium states that fail to explain actual markets.

If the markets of the past were already full of positive feedback, ultra-short-term trading made it even more explosive.
Stock price fluctuations of up to 3-4 percent in a single day occur more frequently today than at any time in stock market history.
Since 2000, daily price changes of more than 4 percent have become more than six times more common than 40 years ago.
- In the text
The market can be forecasted like the weather.
The Economics of Statistics and Forecasting: Breaking Free from the Myth of Equilibrium

So, what can we do to overcome the rapid changes and escalating shocks of this global market, and the limitations of modern economics that fail to predict them?
The author states that the construction of a 'financial database' was the beginning.
First, to statistically predict the trends of 'positive feedback' that may occur in the market and the volatility it causes, we must first integrate historical data from financial markets fragmented across each country and multiple financial institutions.
This is the basis for studying the interconnectedness between financial entities, the positive feedback they create, and the stability of the entire financial system in which this phenomenon occurs.
Economists will now analyze models of financial systems to identify their vulnerabilities and test their resilience, much like complex technical systems like the power grid.
The market in economics, like the world of natural science, is a world where temporary equilibrium and persistent disequilibrium coexist, and we must move beyond the obsession with perfect laws and pursue statistical predictions.
Accumulating diverse financial information is important not only because it improves the quality of market forecasts, but also because it allows for a quantitative reconstruction of the potential for market change.
The uncertainty that inevitably arises when predicting complex markets can be overcome by conducting as many simulations and constructing scenarios based on a large amount of information.
In this book, atmospheric scientists call this collection of numerous weather forecasts, made from a variety of climate data, an "ensemble."
If you think of a musical ensemble where colorful instruments come together to create a harmonious sound, it could be said to be an appropriate term.
In finance and economics, this approach can be adopted to aggregate as much financial and transaction data as possible to construct a market model, and to encourage economic entities within this model to employ independent strategies, much like real people or financial institutions.
And the result, the authors say, will not be a single prediction that misses the complexity of the market, but rather an ensemble of multiple possibilities that will point the way to the market.

The weather is just the way it is, and most of the time we don't try to change it.
In contrast, the modern financial system is “a devil of our own making,” and we can work to avoid the instability that has made it inherently fragile.
- In the text

Changing markets create new theories.
Understand non-equilibrium markets and embrace post-equilibrium economics.

Like other disciplines, economics has always been a product of history.
Modern economics and finance, which assume that markets are cool and rational, emerged during a time when many people still remember the Great Depression and when markets were stable for a long time due to strong government regulation.
Today's mainstream economic theories are products of a time when financial markets were highly regulated and relatively conservative. They advocated rational consumers, markets in stable equilibrium, and the validity of numerous derivative financial products based on these factors.
Ironically, economics, born in the most stable of markets, has paved the way for deregulation and irrational overheating.
Modern mainstream economics, combined with the astonishing pace of information and communication technology development, has created a market so complex and rapidly changing that we cannot even perceive or control it.
Therefore, it is time for an economics discipline to emerge that recognizes the liquidity and inequality of these markets and comprehensively analyzes the impact of new science and technology on the economy and financial markets.
Complex economics, which combines research findings from various cutting-edge scientific disciplines such as physics, biology, and chemistry, will be key to predicting these future markets.


The most important thought to avoid is replacing the old illusion of equilibrium with a new illusion: the self-deceiving illusion that by understanding positive feedback we can create a perfect market theory.
We cannot eliminate the limitations of our predictions; we can only reduce them by constantly highlighting our ignorance, biases, and prejudices about what can and cannot happen.
― In the text