Posted August 5th, 2013
The prestigious series Advances in Austrian Economics will publish a controversial new article that proposes a revolutionary change in the process of economic modeling. "A New Algorithmic Approach to Entangled Political Economy: Insights from the Simplest Models of Complexity" was authored by Philip Maymin, an assistant professor of Finance and Risk Engineering at the Polytechnic Institute of New York University (NYU-Poly) and is scheduled to appear in the Spring 2014 issue.
Maymin asserts that traditional Keynesians tend to ignore the complexity of our economic system, focusing instead on specific “pockets of predictability.” Their predictive models work given a narrow and specific set of circumstances: what might happen, for example, if the Federal Reserve takes action A or action B. “We need models that acknowledge that the system is rarely that simple,” he says. “It is never just one person or entity interacting with another person or entity. Our economy entails a wide variety of transactions, trades, contracts and other inputs.”
Maymin devised a set of algorithms that, while simple themselves, take into account the enormous number of complex, interwoven factors involved in predicting economic consequences. “Traditional models assume a set of rules without acknowledging that the rules are ever-changing,” he says. “What happens when new regulations, laws, or political systems are put in effect—when the rules change? Algorithms can help us explore those possibilities.”
He cautions that the goal is not to encourage a simplified system but to keep it robust, diverse, and growing. “We have repeatedly seen that simple, highly regulated systems are the most fragile,” he says. “They don’t support long-term growth, and they make it difficult for people to move out of poverty.”
Maymin holds bachelor’s and master’s degrees from Harvard University. He earned his doctoral degree in finance from the University of Chicago. He is the founding managing editor of Algorithmic Finance and the author of Financial Hacking, which teaches financial engineering in an innovative way: by providing tools and a point of view to quickly and easily solve real front-office problems.
Advances in Austrian Economics connects the Austrian tradition of economics, as set forth by Nobel laureate Friedrich August von Hayek (1899-1992) and his compatriots, with other research traditions in economics and related areas. Each volume attempts to apply the insights of Austrian economics and related approaches to topics that are of current interest in economics and cognate disciplines. Austrian economics professor Freidrich Hayek, a contemporary of John Maynard Keynes, considered attempts to intervene in the economy potentially dangerous and ineffective.