Home > Uncategorized > Econometric delusions

Econometric delusions

from Lars Syll

reality header3

Because I was there when the economics department of my university got an IBM 360, I was very much caught up in the excitement of combining powerful computers with economic research. Unfortunately, I lost interest in econometrics almost as soon as I understood how it was done. My thinking went through four stages:

1.Holy shit! Do you see what you can do with a computer’s help.
2.Learning computer modeling puts you in a small class where only other members of the caste can truly understand you. This opens up huge avenues for fraud:
3.The main reason to learn stats is to prevent someone else from committing fraud against you.
4.More and more people will gain access to the power of statistical analysis. When that happens, the stratification of importance within the profession should be a matter of who asks the best questions.

Disillusionment began to set in. I began to suspect that all the really interesting economic questions were FAR beyond the ability to reduce them to mathematical formulas. Watching computers being applied to other pursuits than academic economic investigations over time only confirmed those suspicions.

1.Precision manufacture is an obvious application for computing. And for many applications, this worked magnificently. Any design that combined straight line and circles could be easily described for computerized manufacture. Unfortunately, the really interesting design problems can NOT be reduced to formulas. A car’s fender, for example, can not be describe using formulas—it can only be described by specifying an assemblage of multiple points. If math formulas cannot describe something as common and uncomplicated as a car fender, how can it hope to describe human behavior?
2.When people started using computers for animation, it soon became apparent that human motion was almost impossible to model correctly. After a great deal of effort, the animators eventually put tracing balls on real humans and recorded that motion before transferring it to the the animated character. Formulas failed to describe simple human behavior—like a toddler trying to walk.

Lately, I have discovered a Swedish economist who did NOT give up econometrics merely because it sounded so impossible. In fact, he still teaches the stuff. But for the rest of us, he systematically destroys the pretensions of those who think they can describe human behavior with some basic Formulas.

Jonathan Larson

Wonder who that Swedish economist could be …

 

 

  1. October 23, 2015 at 5:30 pm

    How about “Quantum Economics”? That should bring the Uncertainty Principle into the equation. : )

  2. Macrocompassion
    October 24, 2015 at 8:37 pm

    The fault, dear Brutus, is not in the computing but in the basics modeling that preceds it.

  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