Home > The Economics Profession > Why it is better to be roughly right than precisely wrong

Why it is better to be roughly right than precisely wrong

from Lars Syll

keynes-right-and-wrong

When applying deductivist thinking to economics, economists usually set up “as if” models based on a set of tight axiomatic assumptions from which consistent and precise inferences are made. The beauty of this procedure is of course that if the axiomatic premises are true, the conclusions necessarily follow. The snag is that if the models are to be relevant, we also have to argue that their precision and rigour still holds when they are applied to real-world situations. They often don’t. When addressing real economies, the idealizations necessary for the deductivist machinery to work, simply don’t hold.

So how should we evaluate the search for ever greater precision and the concomitant arsenal of mathematical and formalist models? To a large extent, the answer hinges on what we want our models to perform and how we basically understand the world.

For Keynes the world in which we live is inherently uncertain and quantifiable probabilities are the exception rather than the rule. To every statement about it is attached a “weight of argument” that makes it impossible to reduce our beliefs and expectations to a one-dimensional stochastic probability distribution. If “God does not play dice” as Einstein maintained, Keynes would add “nor do people”. The world as we know it, has limited scope for certainty and perfect knowledge. Its intrinsic and almost unlimited complexity and the interrelatedness of its organic parts prevent the possibility of treating it as constituted by “legal atoms” with discretely distinct, separable and stable causal relations. Our knowledge accordingly has to be of a rather fallible kind.

To search for precision and rigour in such a world is self-defeating, at least if precision and rigour are supposed to assure external validity. The only way to defend such an endeavour is to take a blind eye to ontology and restrict oneself to prove things in closed model-worlds. Why we should care about these and not ask questions of relevance is hard to see. We have to at least justify our disregard for the gap between the nature of the real world and our theories and models of it.

Keynes once wrote that economics “is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world.” Now, if the real world is fuzzy, vague and indeterminate, then why should our models build upon a desire to describe it as precise and predictable? Even if there always has to be a trade-off between theory-internal validity and external validity, we have to ask ourselves if our models are relevant.

Models preferably ought to somehow reflect/express/correspond to reality. I’m not saying that the answers are self-evident, but at least you have to do some philosophical under-labouring to rest your case. Too often that is wanting in modern economics, just as it was when Keynes in the 1930s complained about Tinbergen’s and other econometricians lack of justifications of the chosen models and methods.

“Human logic” has to supplant the classical, formal, logic of deductivism if we want to have anything of interest to say of the real world we inhabit. Logic is a marvellous tool in mathematics and axiomatic-deductivist systems, but a poor guide for action in real-world systems, in which concepts and entities are without clear boundaries and continually interact and overlap. In this world I would say we are better served with a methodology that takes into account that “the more we know the more we know we don’t know”.

The models and methods we choose to work with have to be in conjunction with the economy as it is situated and structured. Epistemology has to be founded on ontology. Deductivist closed-system theories, as all the varieties of the Walrasian general equilibrium kind, could perhaps adequately represent an economy showing closed-system characteristics. But since the economy clearly has more in common with an open-system ontology we ought to look out for other theories – theories who are rigorous and precise in the meaning that they can be deployed for enabling us to detect important causal mechanisms, capacities and tendencies pertaining to deep layers of the real world.

Rigour, coherence and consistency have to be defined relative to the entities for which they are supposed to apply. Too often they have been restricted to questions internal to the theory or model. But clearly the nodal point has to concern external questions, such as how our theories and models relate to real-world structures and relations. Applicability rather than internal validity ought to be the arbiter of taste.

  1. Stuart Birks
    September 19, 2013 at 10:57 am

    If the above were submitted to an economics journal, it might be rejected on the grounds that it is saying nothing new, so it does not add to our knowledge. The first part of the above is correct. Similar points were made in more detail in an American Economic Association Presidential Address of all places. See: Gordon, R. A. (1976). Rigor and relevance in a changing institutional setting. The American Economic Review, 66(1), 1-14. The second part of the above is less certain in that the points have been largely overlooked in mainstream economics (and arguably in some branches of heterodox economics). Gordon’s points are as relevant now as they were nearly 40 years ago.

    To give some extracts, from p.4: “Which is more relevant: a rigorous demonstration as to how resources can be most efficiently allocated under ideal conditions that have never existed, or a much cruder exploration of how wealth and income came to be distributed as they in fact are and what might be done to affect the distribution of income in one way or another?”

    On p.5: “In both micro- and macroeconomics, efforts are sometimes made to extract a drop or two of relevance from exercises in analytical rigor; and conclusions are drawn about the functioning of some aspect of the real world, or policy recommendations are made, on the basis of theoretical exercises which rest on assumptions that fly in the face of the facts.”

    On p12: “We may speak of households, firms, and government as the primary economic agents which carry on their activities within the framework of a set of evolving economic institutions. But these agents and economic institutions also interact with an external environment which can be classified in a variety of ways. One simple classification might be: (1) the framework of legal and political institutions, to which I have already referred; (2) the complex of social institutions that make up what may loosely be referred to as the social environment; (3) the evolving body of scientific and technical knowledge (and the institutions through which such knowledge is developed and transmitted); (4) the physical environment; and (5) the complex of political and economic arrangements that tie a nation to the rest of the world.”

    • September 19, 2013 at 3:52 pm

      Thanks for reminding me of Gordon’s great article. I agree. It’s really stunning. After re-reading it now, it strikes me that he said it all — forty years ago!

      • September 19, 2013 at 4:09 pm

        Where can one download Gordon’s article?

      • Fernando de Almeida Martins
        September 19, 2013 at 9:14 pm

        Allow me also to recall a more recente paper of Paul Cockshott on the value theory (marginalists and marxists ) :
        Competing Theories: Wrong or Not Even Wrong ?
        As a mere illustration :
        1.”A hypothesis can be scientific and turn out eventually to be wrong”.
        2.”…when the maths claims to be a model of real world beauty can be mislead…”.
        3.A”…theory is not even wrong (if) it says nothing about the universe that can be empirically tested.”

    • September 20, 2013 at 4:35 am

      Alfred Marshall said it long before Gordon, as in the preface of his famous book (1890): “Economic conditions are constantly changing, and each generation looks at its own problems in its own way”.

      Recent generations have not understood their own problems in any new way. Neoclassical economics is a mathematization of Marshall et al. Marx’s view of inherent class conflict between workers and capitalists is irrelevant in today’s world of worker/capitalists. Keynesians are still looking to governments to overcome the problem of uncertainty.

      So long as academics are locked into the “scholarly past” (to write their papers), they are trained to be blind to the present, unable to see current problems except through the lens of the irrelevant past.

      Much of what’s important today is not apparent or easily accessible to academics who are not organized for monitoring new developments. Their productivity is measured mostly by publications which can only be understood in reference to the past.

      Academic irrelevance is not a serious problem if academics do not become central bankers or government treasurers. Today we have Keynesian management within a neoclassical framework, leading to grotesque market manipulations.

  2. September 19, 2013 at 11:41 am

    Wikiquote says:

    Misattributed

    It is better to be roughly right than precisely wrong.

    Not attributed to Keynes until after his death. The original quote comes from Carveth Read and is:

    It is better to be vaguely right than exactly wrong.

    Logic, deductive and inductive (1898), p. 351 [1]

    • September 19, 2013 at 12:23 pm

      Absolutely right — but the temptation to attribute a saying to a famous person is probably irresistible, especially when its true author is much less well-known, and when it perhaps really doesn’t matter a lot since it’s the content of the saying that is of interest :)

  3. BFWR
    September 19, 2013 at 4:38 pm

    The deepest problem with economics is its bias for power and resultant neglect of the individual. We have the tools (money and mathematics) to bring accountancy and relative stability to a human social science which by its very nature indeed tends to resist quantification. But we must neither let the perfect be the enemy of the Good, nor the impossible be an inducement to apathy. The way to avoid both of these is to put all of the tools available to “work”, the two above AND a philosophy which recognizes and includes all of the quantities of economics and yet also tends to enable the best in our natures instead of inhibiting such. A new “policy of a philosophy” which accurately reflected these best NATURAL characteristics and had the freedom of the individual as its primary intention instead of the power of business or individual entities is NECESSARY. Otherwise our economic struggles will result in those of Sisyphus. Such a wedding of the pragmatic and the psychological/ethical in economics will enable us to make the numbers work for a progression toward homo sapiens, wise and discerning man instead of keeping us in the evolutionary backwaters of a failed experiment with homo economicus.

  4. September 19, 2013 at 11:10 pm

    If economic modelling ever became a scientifically credible discipline I’d expect it to predict its own stability, that is the robustness of the conclusions relative to uncertainty in the assumptions. Only in the most simplistic models (too simple to be useful) can this be done analytically. Real models whose conclusions deserve to guide policy probably have to be large stochastic simulations, themselves ran in parallel in some GA or similar optimisation framework to explore the stability or otherwise of conclusions.

    I’ve heard of some such research from ETH in Zurich, but it’s certainly the exception in the study of economics.

    • BFWR
      September 21, 2013 at 2:10 am

      If we aggregate the empirical data on incomes and prices simultaneously produced by the basic economic entities (businesses) within the economy, which is the scientific thing to do because how much more fundamental a picture of the economy can you get than people exchanging their incomes for products and services by liquidating the prices attached to them, we can see that the incomes produced cannot possibly liquidate the prices. Not at their initial creation and not with each business they pass through on their way to where costs and prices are finally summed at retail sale to an individual. Now velocity THEORY supposedly remedies this, but I believe that empirical data ought to trump theory, and if one also recognizes that downturns in borrowing/lending of money into the economy, a drop in the velocity of money and recessions/depressions all three have a 100% correlation it becomes pretty apparent that the “circulation” of money is really just the continual injection of loans into the economy and the resulting build up of unsustainable debt….like now. It isn’t interest that is the basic problem because if you take out 6 loans that require a $200/mo payment and you only have $1000/mo. of effective demand….you’re insolvent….like we actually are now.

      Graph the above empirical data through time and you get two upward sloping lines. the top one labeled prices is going to go up at a higher rate of flow than the bottom one labeled individual incomes. In other words the two lines are going to diverge. So the elemental empirical data and the fundamental actions of production and exchange and hence, inherently, that is in the normal operation of the economy, the economic effect is price inflation. And so the economy/the entire productive process automatically erodes business profits and individual purchasing power through time.

      You cannot remedy this state by simply injecting more money into the productive process as we do now. This is the flaw of Keynesianism, MMT, etc. and of course this is jumped upon by the Tea Partiers, libertarians, Tories etc. who like nearly all politicians, economists and their pundits/novitiates also have their problems and confusions with economic and monetary orthodoxies. Neither side of the liberal/conservative bias is looking at the actual and enlightening data, and then even if they do their heads are turned by orthodoxy like velocity theory, the mistaken puritan conflation of personal values development with systemic remedies despite the empirical data showing that there IS a systemic scarcity of individual incomes and so a supplement to individual incomes IS necessary.

      You have to raise the rate of flow of total individual incomes to approximate prices by GIVING individuals a direct payment BEFORE it is injected into the economy. In this way you are not re-initiating the price inflationary nature of the productive process.

  5. September 20, 2013 at 8:17 pm

    Keynes’s revolution was to throw out the classical axiom that decision makers knew the real outcome in the future of any decision made today.

    Instead decision makers “know” they do not have certain knowledge about the future.

    in a monetary, market oriented entrepreneurial system, al market decisions regarding exchange and production are sealed with monetary contracts. The State then will enforce all legal monetary contracts so that if one party does not live up to its contractual agreement, the State will enforce a monetary payment penaltyon that defaulting party so that other party still gets some cash inflow. Thus the system of money contracts provides decision makers with some, but not complete, certainty about their future cash inflows and outflows.

    • September 20, 2013 at 11:11 pm

      Keynes used government as a rhetorical device (another blog topic), without analysis of what the government is, and what it may or may not do. I agree that government enforcement of contracts is essential to capitalism. But that is exactly what is not happening today: contracts are not honored.

      Governments are not allowing big insolvent banks to fail or big crooks to go to jail. Laws and contracts are ignored. Officials are ripping off ordinary people and taxpayers and transferring wealth to their cronies in literally trillions of dollars, destroying the economy. Why don’t academics recognize this reality?

      • Jeff Z.
        September 21, 2013 at 6:00 am

        All academics? Or just academic economists? Even that may be a stretch. My economist colleague claims to recognize that the government has been ignoring laws and contracts for a while. That is, when it comes to the pay and bonuses, investment banking executives cry about the sanctity of contracts, but this is ignored when the pay and pensions of auto workers or postal (USPS) workers are concerned. On the opposite end of the political spectrum is the guy that has been my department chair for the last three years. He is a retired Air Force Colonel, and he and I have discussed this several times. I even tell my students.

        That is a good point about the government as a rhetorical device. What happens when the government as contract enforcer is not objective, and has an agenda of its own? Whose agenda is it then?

        Recognition is one thing. Changing things requires activism, and academics have by and large, not been the best activists.

      • September 21, 2013 at 8:07 am

        I never said all academics. I’m referring to academics (or ex-academics) who apply academic theories in central banks and government bureaus, and also those who seek to influence public policy through the mainstream media. Their theories are naive by excluding the possibility of bad people or actions in business, government etc.

        The government is nearly always refer to (as you do), as though it is a single homogeneous entity. The government is in fact a heterogeneous and complex entity, populated by diverse individuals, who are united in any particular bureau supposedly through the organisational mission. Some individuals could have personal agendas which are different or even contrary to their organisational mission. What that bureau does depends on the agenda of the individual in charge, which may vary from supposed public interest.

        That is why Keynesian economics’ confidence in the government is misplaced. The US government does not even enforce its own established laws to enable capitalism to function. “Whose agenda is it then?” In those rogue cases, a rhetorical answer may be: whoever pays the piper who is playing the tune in government.

        You said, “academics have by and large, not been the best activists” This is because education (even in some sciences) is about being “learned” in second-hand knowledge and not about being able to think from first-hand observations. Activism means throwing out the old armchairs academics are comfortably sitting on – it would be irrational to be an academic activist (except to protest academic pay and conditions).

  6. BFWR
    September 21, 2013 at 5:05 pm

    Yes, that is government….currently. What we need is to find a constituency sufficiently broad and inclusive enough and awaken them to their rational self interest. That constituency is the consumer. We are all consumers and we all want the ability to purchase, the means of purchasing to maintain its value and for that means of purchasing to be adequate. The solution is a mass social movement that cuts through all of the confusion, individual agendas (even of so called reformers), authoritarianism, mistaken puritan conflating of PERSONAL values and behavior (austerity/frugality) as the solution to the SYSTEMIC problem which is that the mass of individuals just don’t have sufficient incomes to make the system function properly. Getting the mass of consumers clearly focused on that becoming policy is exactly what is required. A final confusion which needs to be cleared up is the irrational idea that centralization is necessarily an evil. Centralized administration of individual economic freedom…..is still individual economic freedom. A = A…..does it not?

  7. Reiner Buchegger
    September 23, 2013 at 6:47 am

    On the occasion of Prof. Kurt W. Rothschild’s retirement Gunther Tichy formulated a variation of the above themes as ‘Rothschild’s Law’: It is better to answer a relevant question approximately correct than to answer an irrelevant one precisely!

  8. November 10, 2016 at 11:51 am

    It is better to be precisely right than roughly wrong
    Comment on Lars Syll on ‘Why it is better to be roughly right than precisely wrong’

    Scientists know it but economists do not: “The chief demerit is inconsistency, including inconsistency with the results of experiments that a competing theory can explain.” (Popper, 1994)

    Scientists know it but economists do not: “Research is in fact a continuous discussion of the consistency of theories: formal consistency insofar as the discussion relates to the logical cohesion of what is asserted in joint theories; material consistency insofar as the agreement of observations with theories is concerned.” (Klant, 1994)

    So, science is about formal AND material consistency ― BOTH simultaneously, NOT either/or. It is all simple and clear.

    But in all walks of life there is always the original and a lookalike. Accordingly, there is science and cargo cult science. Feynman characterized the lookalikes: “they follow all the apparent precepts and forms of scientific investigation, but they’re missing something essential.”

    What is missing is an understanding of what science is all about. Science is digital=binary=true/false and NOTHING in between. There is NO such thing in science as roughly right or roughly wrong, there is only materially/formally true/false. All the rest is storytelling, gossip, sitcom.

    Vague blather, untestable wish-wash, inconclusive either-or and storytelling has always been the hallmark of political economists. Political economics is the lookalike of theoretical economics. Walrasianism, Keynesianism, Marxianism, Austrianism is political economics.

    So, there are the hard rocks of true and false and the bottomless swamp between them where “nothing is clear and everything is possible” (Keynes). The swamp is the natural habitat of morons, agenda pushers, confused confusers,* trolls, and incompetent scientists.

    Economists are natural born swampies. And this explains why economics is a failed science. Walrasianism, Keynesianism, Marxianism, Austrianism are mutually contradictory and the proponents fight each other. But this does not go very deep and it never goes to the final refutation of one approach or the other. Every swampie respects the other swampie’s wish to fool around in the swamp.

    In marked contrast, scientists drive the question under discussion to the point of a clear-cut decision between true and false. And they do not touch questions that cannot be decided by the accepted means, that is, by logic and testing.

    The Brotherhood of Swampies has no genuine interest in a definite true/false outcome but seeks to stay, for whatever reasons, in the status quo swamp. Swampies subscribe to a common methodoligcal core: it is better to be roughly right than precisely wrong, anything goes, truth is subjective and relative, reality is a social construct, nobody has the truth with a big T, everybody has some truth with a small t, and finally, to the pluralism of false theories. Swampies have produced the gigantic heap of toxic scientific waste that is called economics.

    Swampies simply do not understand what science is all about. As Feynman put it: “The first principle is that you must not fool yourself ― and you are the easiest person to fool. So you have to be very careful about that. After you’ve not fooled yourself, it’s easy not to fool other scientists. You just have to be honest in a conventional way after that.”

    Neither orthodox nor heterodox economists fit this description of a scientist. But BOTH orthodox and heterodox economists fit the description of lookalike scientists, political agenda pushers and self-foolers. And this is exactly why it is best to throw BOTH now speedily out of the scientific community.

    Egmont Kakarot-Handtke

    * See ‘Confused Confusers: How to Stop Thinking Like an Economist and Start Thinking Like a Scientist’
    https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2207598

    • November 12, 2016 at 7:06 pm

      The problem with science and the scientific method which is itself a trinity-unity-oneness-process of [ hypothesis (the dualistic comparison of factors regarding the hypothesis ]….is that its adherents forget that their hypothesis might be unscientifically incomplete and/or dogmatically closed minded.

  9. November 12, 2016 at 7:12 pm

    Actually, let me restate that this way:

    The all too prevalent problem with scientists and their utilization of the scientific method which is itself a trinity-unity-oneness-process of [ hypothesis (the dualistic comparison of factors regarding the hypothesis) ]….is that its adherents forget that their hypothesis might be unscientifically incomplete and/or dogmatically closed minded.

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