Home > Uncategorized > Are all models wrong?

Are all models wrong?

from Lars Syll

quote-all-models-are-wrong-but-some-are-useful-george-e-p-box-53-42-27If you say “All models are wrong” then the most important issue is to define the words. “All” is quite clear, “are” also is without much doubt. So, we are left with “models” and “wrong” …

The more interesting discussion is the one about the definition of truth. The philosopher Bertrand Russell has written something on truth about a century ago in his book The Problems of Philosophy (ch. XII):

“It will be seen that minds do not create truth or falsehood. They create beliefs, but when once the beliefs are created, the mind cannot make them true or false, except in the special case where they concern future things which are within the power of the person believing, such as catching trains. What makes a belief true is a fact, and this fact does not (except in exceptional cases) in any way involve the mind of the person who has the belief.”

Truth, Russell says, is correspondence with facts. If minds do not create truth or falsehood, but only beliefs, then I would argue that models are beliefs. They can be true when they correspond to the facts. So, there is hope! Models can be right after all! … A model is an abstraction, but as such it can be right. Of course, there is no proof that a model that has been right today will be right tomorrow, but that only makes economics an art.

Dirk Ehnts

Interesting reading that — once again — shows that being able to model and investigate a credible world, a world that somehow could be considered real or similar to the real world, is not the same as investigating the real world. Even though all models are false, since they simplify, they may still possibly serve our pursuit of truth. But then they cannot be unrealistic or false in any way. The falsehood or unrealisticness has to be qualified (in terms of resemblance, relevance, etc.). At the very least, the minimalist demand on models in terms of credibility has to give away to a stronger epistemic demand of appropriate similarity and plausibility.

The predominant strategy in ‘modern’ economics is to build models and make things happen in these “analogue-economy models” rather than engineering things happening in real economies. And as a rule the modelers consider their work done when they have been able to convince themselves that the model is valid. But — really — to have valid evidence is not enough. What economics needs is sound evidence. Why? Simply because the premises of a valid argument do not have to be true, but a sound argument, on the other hand, is not only valid, but builds on premises that are true. Aiming only for validity, without soundness, is setting the economics aspirations level too low for developing a realist and relevant science.

  1. September 15, 2015 at 5:49 pm

    Here is a “model” deduced from the REAL WORLD evidence of M2 and M1. Very simple.
    How to turn 9 Trillion dollars of unpayable principal debt into 9 Trillion dollars of new funding. Try refuting anything I have written. That is an INVITATION.

    http://www.moneyasdebt.net.

    If only economists would stop whining about the failures of their profession and get some respect for EVIDENCE and LOGIC, economics might actually begin resembling a science.

  2. September 16, 2015 at 3:40 am

    Better to take Truth, Reality, Falsehood, Wrong, etc out of the discussion. Also Facts, they are too slippery.

    Science (which economics ought to be) is not about Truth. It is about models that are a USEFUL guide to what we can observe – to how the observable world works.

    So the key words are *useful* and *observe*. A useful model helps us to understand what we can observe.

    Newton’s model of gravity is *useful* for many purposes. Einstein’s model of gravity is useful for a greater range of circumstances. Newton’s model is not “wrong”, “disproven”, “falsified”, it is less useful, but still very useful. Einstein’s model may someday be surpassed by a new model.

  3. September 16, 2015 at 7:14 am

    Two steps towards truth
    Comment on ‘Are all models wrong?’

    “So the idea of truth (of an ‘absolute’ truth) … is our main regulative idea.” (Popper, 1994, p. 161)

    To give up the idea of truth is to give up science and this leaves one with no alternative but to settle questions by applying the full spectrum of political means, as humankind has done before science could establish itself.

    Economics is still on the proto-scientific stage: “Within the whole of his [the economist’s] science, or what he insists on calling science, no generally recognised result is to be found, as is also the case for theology and for roughly the same reasons; there is no single doctrine taken to be a scientific truth without the diametrically opposed view being similarly upheld by authors of high repute.” (Wicksell, quoted in Deane, 1983, p. 8)

    One possible reaction to this embarrassment is to give up the idea of objective truth in economics. This attitude is rather popular among heterodox economists — and it is self-defeating.

    “If economics cannot aspire to any substantive knowledge of economic relationships, it cannot speak with authority about questions of economic policy.” (Blaug, 1990, p. 111)

    Without this aspiration economics degenerates to mere opinion, political economics, and in the last consequence to a quite ordinary power struggle.

    The procedure is quite different when truth is the regulative idea. This is common knowledge since J. S. Mill: “A method of obtaining accurate premises is needed because science can only be true if its premises are true. Because facts alone cannot bring us to the truth, he seeks the answer in logic. Mill praised the Schoolmen for recognizing that scientific procedure consists in ascertaining premises and deducing conclusions. (Redman, 1997, p. 328)

    The first step is to recognize that all models are wrong that are built upon the following premises: utility, expected utility, rationality/bounded rationality/animal spirits, equilibrium, constrained optimization, well-behaved production functions/fixation on decreasing returns, supply/demand functions, simultaneous adaptation, rational expectation, total income=value of output/I=S, real-number quantities/prices, and ergodicity. All these items are economic nonentities.

    The second step is to replace these unacceptable premises. This is not an easy task, yet Heterodoxy has one decisive advantage vis-à-vis Orthodoxy: “It is the optimistic theory that science, that is real knowledge about the hidden real world, though certainly very difficult, is nevertheless attainable, at least for some of us.” (Popper, 1994, p. 192)

    Egmont Kakarot-Handtke

    References
    Blaug, M. (1990). Economic Theories, True or False? Aldershot, Brookfield, VT: Edward Elgar.
    Deane, P. (1983). The Scope and Method of Economic Science. Economic Journal,
    93(369): 1–12. URL http://www.jstor.org/stable/2232161.
    Popper, K. R. (1994). The Myth of the Framework. In Defence of Science and Rationality., chapter Models, Instruments, and Truth, pages 154–184. London,
    New York, NY: Routledge.
    Redman, D. A. (1997). The Rise of Political Economy as Science. Methodology and the Classical Economists. Cambridge, MA, London: MIT Press.

    • September 17, 2015 at 2:15 am

      EKH – so who spoke truth? Newton? Einstein? Both? Neither? Science is not about absolutes.

  4. Macrocompassion
    September 16, 2015 at 3:50 pm

    Wrong is the incorrect word to apply to macroeconomic modeling. Most are incomplete and consequently are incapable of providing a good and true representation of the whole situation. Some are too complicated, and even if they do cover the whole of the big picture, it is impossible to understand their basic trends and findings. What kind of model is the beat? Obviously one that lays between these two extremes and which is not only useful but reasonably representative of the whole shebang. Such a model I have presented before and it is in my new book “Consequential Macroeconomics” It may also be seen in my working paper SSRN-260013 , about using the mechanical version of it to teach students about of what our social consists and how our it works. Excuse me but this is moire than merely being useful!

  5. September 16, 2015 at 9:41 pm

    “It is the optimistic theory that science, that is real knowledge about the hidden real world, though certainly very difficult, is nevertheless attainable, at least for some of us.” (Popper, 1994, p. 192)
    and
    “Believe nothing merely because you have been told it…But whatsoever, after due examination and analysis,you find to be kind, conducive to the good, the benefit,the welfare of all beings – that doctrine believe and cling to,and take it as your guide.”- Buddha

    Please read “The Role Of Money” (Free full download) http://archive.org/details/roleofmoney032861mbp “PREFACE This book attempts to clear up the mystery of money in its social aspect. With the monetary system of the whole world in chaos, this mystery has never been so carefully fostered as it is to-day. And this is all the more curious inasmuch as there is not the slightest reason for this mystery. This book will show what money now is, what it does, and what it should do. From this will emerge the recognition of what has always been the true role of money. The standpoint from which most books on modern money are written has been reversed. In this book the subject is not treated from the point of view of the bankers as those are called who create by far the greater proportion of money but from that of the PUBLIC, who at present have to give up valuable goods and services to the bankers in return for the money that they have so cleverly created and create. This, surely, is what the public really wants to know about money. It was recognized in Athens and Sparta ten centuries before the birth of Christ that one of the most vital prerogatives of the State was the sole right to issue money. How curious that the unique quality of this prerogative is only now being re-discovered. The” money-power ” which has been able to overshadow ostensibly responsible government, is not the power of the merely ultrarich, but is nothing more nor less than a new technique designed to create and destroy money by adding and withdrawing figures in bank ledgers, without the slightest concern for the interests of the community or the real role that money ought to perform therein.” Who was (Nobel Prize for Chemistry ,1921) Frederick Soddy ? http://en.wikipedia.org/wiki/Frederick_Soddy

    “In four books written from 1921 to 1934, Soddy carried on a “campaign for a radical restructuring of global monetary relationships”,[12] offering a perspective on economics rooted in physics—the laws of thermodynamics, in particular—and was “roundly dismissed as a crank”.[12] While most of his proposals – “to abandon the gold standard, let international exchange rates float, use federal surpluses and deficits as macroeconomic policy tools that could counter cyclical trends, and establish bureaus of economic statistics (including a consumer price index) in order to facilitate this effort” – are now conventional practice, his critique of fractional-reserve banking still “remains outside the bounds of conventional wisdom”.[12] Soddy wrote that financial debts grew exponentially at compound interest but the real economy was based on exhaustible stocks…”

  6. September 16, 2015 at 10:59 pm

    My position is that traditional logic is static, and words point to static relationships like wholes and parts, much as an index entry in a book refers to the page it occurs in. Such an index may be true (point to the right page), but it may not be, e.g. if the book is revised and the index is not. In other words, the users of traditional logic assume (or persuade others to believe) that relationships and references don’t change during the presentation of an argument. The evidence of communications technology or a game of Chinese Whispers is that words and their meanings do change, and post-1948 dynamic logic takes that into account. [See my comment at https://rwer.wordpress.com/2015/06/12/the-context-dependency-of-human-economic-behaviour/#comment-93707%5D.

    So, arguments and models (be they pictorial, mathematical or physical) are not the economy but may REFER to it directly or in terms of how to interpret what we see or hear. What the word ‘economics’ refers to has changed. What it was originally about was household management: the human version of the biological task of feeding the kids. Adam Smith changed that to automatic achievement of the wealth of nations by industrialists, then Ricardo to rentiers making money out of money, then Jevons to traders making money out of existing (not simply surplus) ‘wealth’. (The word suggests well-being but by now points 97% to ‘ownership’ of debt).

    The word ‘science’ refers to knowledge, which has not only to be sought by scientists but thereafter taught by pointing out where and how to look, which in the case of interacting variables is more readily achieved by Geoff’s dynamic models than Egmont’s visually static structures. To repeat, though, one can look at things happening, the things they are happening to, why they are happening and how to make them happen (or prevent them) in future, when it matters. The fundamental (potentially ‘revolutionary’) scientist is searching without the benefit of satisfactory arguments and models, whereas the ‘normal’ applied scientist can redescribe what he is seeing in the usual way and eliminate the extraneous until he sees or gets what he is looking for. [See Bhaskar’s DREI(c) and RRREI(c) schema in “Dialectic: the Pulse of Freedom”, 1993, Verso, pp.109, 133].

    My points are, that unless one sees these different levels of argument one will not see that ‘truth’ refers as much to an interpretation as to a reference, and even more so to the logic built into an entity enabling it to truly do what is claimed for it; that different scientists are looking for truth at different levels.

    Maryani-Squire and Moussa, at section 11 (p.194) of the Journal of Australian Political Economics (http://australianpe.wix.com/japehome#!current/c1cok), define terminology I find very helpful in seeing the logical order of events in science, in which the axioms of deductive teaching are not assumptions but the conclusions of in-depth retroductive discovery and analysis:

    > “With respect to economics, one may advocate the plurality of philosophical foundations (preconceptions about the nature of reality, knowledge and ethical precepts per se), methodological positions (epistemic goals, rules and criteria of assessment), theoretical frameworks (elementary ‘genetic’ propositions characterising a theoretical worldview or general understanding of economic phenomena), theories (speculative accounts of certain economic phenomena), models (potentially quantifiable specifications of a theory), or methods (specific procedures for constructing and testing theories and models).”

    In these terms, my own interests have been in the philosophical foundations, methodological positions and theoretical frameworks: the Big Bang (Hubble’s Bubble) and Cartesian coordinates defining the theoretical framework as motions evolving PID error correction feedbacks, which when all present restart at a higher level of significance (much like adding in Arabic numerals). Thus my economic theory is that our economy is a PID control system in which the aim of control has evolved (via the introduction of derivatives) from biological well-being using money instrumentally to money-making with no reference to well-being. Its minimally complex diagram tells one where to look, but leaves one free to try out different interpretations of what is going on “inside” it. Some explain better than others what we see, the orthodox explanations what is wrong.

    • September 16, 2015 at 11:16 pm

      Sorry: in transcribing from a file, missed the start of that, also Just-a-lucky’s contribution.

      “Lars, Geoff and Egmont all make interesting points, but what never seems to come up in such discussions are the fact that they are relying on linguistic logic yet not defining their position on what it and languages are and what they do.”

      I share Just-a-Lucky’s appreciation of Soddy. I have somewhere a download in which Soddy lists all the dissident amateur economists who should have been listened to, these being more or less those who I’ve learned most from. At http://habitat.aq.upm.es/boletin/n37/afsod.en.html?iframe=true&width=100%&height=100% he, like me, singles out John Ruskin for special praise, suggesting a memorial to him on the [killing fields] of Flanders.

  7. September 17, 2015 at 10:51 am

    A question of principle(s)
    Comment on Geoff Davis on ‘Are all models wrong?’

    You ask: “Who spoke truth? Newton? Einstein? Both? Neither?”

    The short answer is that Einstein is more general and contains Newton as limiting case for low speed. For economists, however, this is not the crucial point. What is much more enlightening is that both shared the same idea of truth.

    Newton: “Could all the phaenomena of nature be deduced from only thre [sic] or four general suppositions there might be great reason to allow those suppositions to be true.” (quoted in Westfall, 2008, p. 642)

    Einstein on generality: “For this theory [the Theory of Relativity] revealed that it was possible for us, using basic principles very far removed from those of Newton, to do justice to the entire range of the data of experience in a manner even more complete and satisfactory than was possible with Newton’s principles.” (1934, p. 166)

    Einstein’s fundamental methodological question: “If then it is the case that the axiomatic basis of theoretical physics cannot be an inference from experience, but must be free invention, have we any right to hope that we shall find the correct way?” (1934, p. 167)

    Same answer as Newton: “In a certain sense, therefore, I hold it to be true that pure thought is competent to comprehend the real, as the ancients dreamed.” (1934, p. 167)

    Same answer as J. S. Mill: “What are the propositions which may reasonably be received without proof? That there must be some such propositions all are agreed, since there cannot be an infinite series of proof, a chain suspended from nothing. But to determine what these propositions are, is the opus magnum of the more recondite mental philosophy.” (2006, p. 746)

    Scientists eventually establish the truth (=material and formal consistency). In economics, indeed, all models are wrong. Economists are stuck in the morass of opinions because they messed up Mill’s opus magnum. Heterodoxy’s task is to get beyond political blather and to spell out the ‘thre or four general suppositions’ knowing from Orthodoxy’s failure already what the false answers are.

    Egmont Kakarot-Handtke

    References
    Einstein, A. (1934). On the Method of Theoretical Physics. Philosophy of Science, 1(2): 163–169. URL http://www.jstor.org/stable/184387.
    Mill, J. S. (2006). Principles of Political Economy With Some of Their Applications to Social Philosophy, volume 3, Books III-V of Collected Works of John Stuart Mill. Indianapolis, IN: Liberty Fund. URL http://www.econlib.org/library/Mill/mlP.html. (1866).
    Westfall, R. S. (2008). Never at Rest. A Biography of Isaac Newton. Cambridge: Cambridge University Press, 17th edition.

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s