Why Most Things Fail | Paul Ormerod

Summary of: Why Most Things Fail: Evolution, Extinction and Economics
By: Paul Ormerod

Introduction

Dive into the fascinating world of ‘Why Most Things Fail: Evolution, Extinction and Economics’ by Paul Ormerod, which explores the phenomenon of failure in biological, social, and economic systems. This book will challenge your understanding of conventional economics, revealing the static nature of the equilibrium and the fallacy of treating failure as an exception. Learn about the impact of government policies, the randomness of economic systems, and the intriguing parallels between evolution and economics. Gain insights from real-life examples of failed businesses, social inequality, and the limits of conventional economic theories.

The Truth About Business Failure

Most businesses fail, but why does conventional economics ignore this fundamental fact? This book challenges the traditional approach to managing a business by highlighting the importance of recognizing failure as a constant factor in business, social, and economic systems. Economist Alfred Marshall recognized early in his career that massive corporations do not last forever, and he was right. Most of the 1910’s big companies no longer exist. However, contemporary economists still depend on equilibrium, not accounting for the ever-changing social and economic systems. The book argues that relying on demand, cost, pricing, and competitive response does not sufficiently account for the complexities of businesses. The failure is not unique to business, but also exists in many dimensions, including the government policies that aim to reduce social inequality. The book explores the root causes of failure and challenges readers to rethink their approach to managing their businesses in the face of a constantly changing environment.

The Illusion of Big Causes

Economic systems are complex, and the phenomenon of GDP is the result of countless small decisions that are impossible to predict. People tend to believe that big effects must result from big causes, but this is not true. Friedrich Engels noted the sharp class segregation in Manchester as early as 1844. Even after 150 years of social reform, the situation remained nearly unchanged. In the US, segregation is more based on race than class. However, even a mild preference for living with one’s own kind can lead to a highly segregated neighborhood. People don’t have to intensely dislike someone or have a strong desire to live with people of the same race or class to create segregation. A small preference can result in an outcome that resembles the result of massive racial or class-based hostility. Economic systems often follow this pattern where small decisions have massive impacts, and the illusion of big causes blurs the true nature of the outcome. Understanding this phenomenon is crucial to creating systemic social reform.

The Uncertainty of Economics and the Insights of Game Theory and Evolutionary Biology

The field of economics has tried to ignore uncertainty, but game theory has shed light on the unpredictable nature of market life. However, game theory has its limitations in real-world applications, as people don’t always act rationally. Surprises and accidents happen even in games that have been played for thousands of years, such as chess. Businesses and government policies operate in an environment that is difficult to analyze and understand. The uncertain, unexpected, incomplete, or unclear rarely allow for reasonable, well-informed economic models. Evolutionary biology offers insights into the phenomenon of failure, insights that may prove instructive for business management and government policy.

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