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Alternative theoretical practice

If theoretical models assume uncertainty, however, and assume that agents have epistemic and ontological beliefs consistent with this state of affairs, the proper way to approach the course of economic phenomena should be very different. Particularly in place of mechanisms or economic regularities that keep running independently of agents’ expectations, the decisive role of lobbyists within open-ended processes based on expectations should be incorporated into the analysis. Such an alternative approach to economics could be based on the following set of assumptions which focuses on the lobbyist role of agents and the special kind of practical knowledge and skills they need. Choosing this approach means abandoning the pretense of scientific status desired by Lucas, which is obtainable at the price of assuming PTF. I suggest that the following assumptions could be the philosophical core of a new conceptual framework for economics:  1) There are economic processes based on expectations and characterized by radical uncertainty. Agents involved in such processes act in two different ways (as decision-makers or as lobbyists)

2) Ex-ante knowledge of invariant sequences of events is generally not possible (because there are few if any sequences of this kind); more importantly, such knowledge is unnecessary as support and justification for the implementation of economic policies.

3) The role of theoretical practice is to identify the many feasible “branches” of a “tree of plausible outcomes” as well as the restrictions that each sequence of events faces.

4) It is not known (and it is not possible to know) ex-ante what “branches” of the tree (what sequences of feasible alternative events) will prevail. Science cannot help us with this.

5) Other types of knowledge (common and practical knowledge as well as practical skills) are crucial for shaping those processes. It is a sort of know-how knowledge, closer to management and administration than to scientific economics.

6) Although – as was shown in point (3) – theoretical practice has an important role to play in shaping processes, what is crucial in this endeavor is another practice, which we denote as lobbyist (interventional) practice (LP). As mentioned above, LP is performed by a wide range of economic players (mostly different kinds of interest groups who are able to operate in the relevant context and on agents’ expectations).

A theoretical practice compatible with all these assumptions and that also incorporates uncertainty, new key players – as lobbyists – and new forms of rationality, knowledge and skills will be a huge contribution for an understanding of economic processes.

Gustavo Marqués    “Six core assumptions for a new conceptual framework for economics”

  1. paul davidson
    March 22, 2015 at 2:31 pm

    March 22, 2015 at 2:16 pm

    Reply

    unfortunately , epistemic uncertainty is not consistent with your argument. If the economic system is ergodic (i.e., system processes are stable over time) then the occurrence of future events are already preprogrammed in the ergodic system. [Note Paul Samuelson asserted that for economics to be a “science” the system must be ergodic.]

    If humans do not know the system is ergodic [probability distribution do nto vary over time] then humans are epistemologically uncerain. Nevertheless the path of the economy is already determined and nothing the humans including lobbyists can do will change the future outcome. The example I always give is that the movement of heavenly bodies are determined –since the Big Bang- by ergodic natural laws and nothing humans can do can change their paths. Accordingly, if congress, having epistemological uncertainty, believes it can pass a law outlawing solar eclipses to provide more sunshine and help increase crop yield. it will pass thid bill to increase GDP. But this law will not change sunshine or GDP or solar eclipses. [Note that Frank Knight had a concept of epistemological uncertainty — yet this did not affect the University of Chicago’s laissez faire philosophy of leaving it to the market to determine the future

    Thus epistemological uncertainty about the future outcome of decision made to day have no effect on the long run path of the economy. you might as well leave the future to decisions made by market players, But if the economic system is ontological uncertiain, then humans by their actions can create the future — and government policy is relevant!!

  2. Ian Murray
    March 22, 2015 at 3:47 pm

    Paul, the political-economic-ecologic systems are ontologically *indeterminate*; it makes no sense to assert systems are uncertain. Epistemic agents are uncertain; trees, rivers, buildings, balance sheets are not. Hence, the current exploration of performativity; the non-ergodicity of the systems puts the emphasis on creating-reproducing-transforming systems.

  3. paul davidson
    March 23, 2015 at 3:12 pm

    if the system is ergodic, the system is not uncertain — and the future is predetetermined by irrevocable natural probability distribution laws, that can not be changed by human effort. Of course, humans may not recognize that the futre is determined ergodically–but since humans can not change the future, then policy changes are not useful.

    If the system is nonergodic then the future is uncertain a far as humans are concerned in the sense that there is no facts that exists today that will provide correct information about what the future outcomes of today’s decisions will be.

  4. March 23, 2015 at 8:46 pm

    I do not see how “a theoretical practice compatible with all these assumptions will be a huge contribution for a broader understanding of economic processes.” Students’ rebellion, heterodox criticisms and numerous entries in RWER reflect a deep concern as regards the pathologies of mainstream economics. I share unreservedly that concern, but the nebulous arguments offered as remedies seem to explain why so little progress has been made. I submit that would not have happened had these arguments cast in terms of differential dynamic theory.
    For a broader understanding of the economic process (EP) we should begin by outlining a number of characteristics that are beyond dispute. The EP is an input/output construct with feedbacks, hence it is nonlinear. It encompasses learning and adaptation; hence it is reflexive and, therefore, non-ergodic. Dynamicists agree that a dynamic system which is deterministic and at the same time contains some stochasticity shall be considered stochastic. Since EP is dissipative, it must have an attractor determining behavior. The coefficients of EP are made out of trading ratios and rates that are subject to changes, while variations of coefficients throw the EP into different basins of attraction leading to different attractors. These facts explain bifurcations, chaos, and self-organization.
    Keeping these in mind, the EP is a triple (X, μ, Tt), where X is the set of all possible states, μ is a metric on X, and T is a measurable mapping T: X → X. Given the fact that EP is dissipative, it is not volume-preserving and therefore the Lebesgue measure must be replaced by the so-called Sinai-Ruelle-Bowen (SRB). In terms of the production and dissipation of information, the Kolmogorov-Sinai entropy rate is readily available in the Persin’s (1977) theorem.
    I have heard many complaints to the effect that EP is not sufficiently anchored in empiricism. The above approach quashes that complaint. For Taken’s (1981) theorem asserts that when faced with an unknown dynamical system, a prototypical attractor can be constructed from n consecutive elements of an observable or a noiseless time series of the unknown system. The reconstructed attractor will provide a true topological picture of the dynamics of the unknown system. Thus Taken’s theorem bypasses the difficulties of modeling such a complex system.
    From this approach, economic students will have a good dose of empiricism. They will know the difference between the density of information (Shannon entropy) and thermodynamic entropy. For those that are interested in econometrics, they should finally get Professor Davidson’s warning to the effect that a non-ergodic time series cannot be stationary in the wide-sense. They will also know that a phase change always precedes a bifurcation as well as the difference between “fractal’ and “strange” attractors, etc. In sum, economics will become what it should have been from the start, i. e. a highly technical activity at the service of society.

  5. Ian Murray
    March 23, 2015 at 11:59 pm

    In non-ergodic systems, ‘the future’ is indeterminate as well as uncertain; it’s not a zero sum game between those terms. The malleability-pluripotentiality of ‘the future’ is the very stuff of politics. A deeper ontological issue issue is the where/when ergodicity leaves off and non-ergodicity begins. Is human activity on our planet an archipelago of non-ergodicity in an ergodic ocean? Do we even have a portfolio of decision procedures for the parsing of the distinctions?

    • March 24, 2015 at 8:58 am

      I agree with Ian Murray. As Keynes said ‘in the long run we’re all dead’. So it may be ergodic depending on where you put the borders around your system. Boltzmann suggested the universe would end in heat death; Tipler (‘physics of immortality’–a somewhat amusing but also interesting book )suggests a slightly different interpretation via chaos theory and Poincare recurrence theorem (like the ‘omega point’ of Chardin). (There are many fine details it seems to me of how to describe a process, eg distinctions between ergodic and non-erogdic hamiltonian systems; also approximations such as quasi-ergodic)..

      These issues are pretty far removed from issues such as whether Greece should exit the euro, whether economies should aim technological growth or environmental stability, inequality, guns or butter, division of labor and educational training etc.

  6. March 25, 2015 at 12:18 pm

    What a great post

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