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The best advice you will get this year

from Lars Syll

hunting

Getting it right about the causal structure of a real system in front of us is often a matter of great importance. It is not appropriate to offer the authority of formalism over serious consideration of what are the best assumptions to make about the structure at hand …

Where we don’t know, we don’t know. When we have to proceed with little information we should make the best evaluation we can for the case at hand — and hedge our bets heavily; we should not proceed with false confidence having plumped either for or against some specific hypothesis … for how the given system works when we really have no idea.

Trying to get around this lack of knowledge, mainstream economists in their quest for deductive certainty in their models, standardly assume things like ‘independence,’ ‘linearity,’ ‘additivity,’ ‘stability,’ ‘manipulability,’ ‘variation free variables,’ ‘faithfulness,’ ‘invariance,’ ‘implementation neutrality,’ ‘superexogeneity,’ etc., etc.  

This can’t be the right way to tackle real-world problems. If those conditions do not hold, almost everything in those models is lost. The price paid for deductively is an exceedingly narrow scope. By this I do not mean to say that we have to discard all (causal) theories/laws building on ‘stability,’ ‘invariance,’ etc. But we have to acknowledge the fact that outside the systems that possibly fullfil these assumptions, they are of little substantial value. Running paper and pen experiments on artificial ‘analogue’ model economies is a sure way of ‘establishing’ (causal) economic laws or solving intricate problems  — in the model-world. But they are pure substitutes for the real thing and they don’t have much bearing on what goes on in real-world open social systems. Deductive systems are powerful. But one single false premise and all power is gone. Setting up convenient circumstances for conducting thought-experiments may tell us a lot about what happens under those kinds of circumstances. But — few, if any, real-world social systems are ‘convenient.’ So most of those systems, theories and models, are irrelevant for letting us know what we really want to know.

Limiting model assumptions in economic science always have to be closely examined. The results we get in models are only as sure as the assumptions on which they build — and if the economist doesn’t give any guidance on how to apply his models to real-world systems he doesn’t deserve our attention. Of course one can always say — as James Heckman — that it is relatively straightforward to define causality “when the causes can be independently varied.” But what good does that do when we know for a fact that real-world causes almost never can be independently varied?

Building models can’t be a goal in itself. Good models are means that makes it possible for us to infer things about the real-world systems they ‘represent.’ If we can’t show that the mechanisms or causes that we isolate and handle in our models are ‘exportable’ to the real-world, they are of limited value to our understanding, explanations or predictions of real economic systems.

The kind of fundamental assumption about the character of material laws, on which scientists appear commonly to act, seems to me to be much less simple than the bare principle of uniformity. They appear to assume something much more like what mathematicians call the principle of the superposition of small effects, or, as I prefer to call it, in this connection, the atomic character of natural law. 3The system of the material universe must consist, if this kind of assumption is warranted, of bodies which we may term (without any implication as to their size being conveyed thereby) legal atoms, such that each of them exercises its own separate, independent, and invariable effect, a change of the total state being compounded of a number of separate changes each of which is solely due to a separate portion of the preceding state. We do not have an invariable relation between particular bodies, but nevertheless each has on the others its own separate and invariable effect, which does not change with changing circumstances, although, of course, the total effect may be changed to almost any extent if all the other accompanying causes are different. Each atom can, according to this theory, be treated as a separate cause and does not enter into different organic combinations in each of which it is regulated by different laws …

The scientist wishes, in fact, to assume that the occurrence of a phenomenon which has appeared as part of a more complex phenomenon, may be some reason for expecting it to be associated on another occasion with part of the same complex. Yet if different wholes were subject to laws qua wholes and not simply on account of and in proportion to the differences of their parts, knowledge of a part could not lead, it would seem, even to presumptive or probable knowledge as to its association with other parts. Given, on the other hand, a number of legally atomic units and the laws connecting them, it would be possible to deduce their effects pro tanto without an exhaustive knowledge of all the coexisting circumstances.

Real-world social systems are usually not governed by stable causal mechanisms or capacities. The kinds of ‘laws’ and relations that e. g. econometrics has established, are laws and relations about entities in models that presuppose causal mechanisms being invariant and atomistic. But — when causal mechanisms operate in the real world they only do it in ever-changing and unstable combinations where the whole is more than a mechanical sum of parts. If economic regularities obtain they do it as a rule only because we engineered them for that purpose. Outside man-made ‘nomological machines’ they are rare, or even non-existant.

Since there is no absolutely certain knowledge at hand in social sciences — including economics — explicit argumentation and justification ought to play an extremely important role if the purported knowledge claims are to be sustainably warranted. Without careful supporting arguments, building ‘convenient’ analogue models of real-world phenomena accomplishes absolutely nothing.

So we better follow Cartwright’s advice:

Where we don’t know, we don’t know. When we have to proceed with little information we should make the best evaluation we can for the case at hand — and hedge our bets heavily.

  1. Enquiring Mind
    January 6, 2017 at 4:24 pm

    In the new world, economists will measure cis-heteroskedasticity.

  2. January 8, 2017 at 6:14 am

    Let’s lay our cards on the table. Per Tim Ingold (Anthropologist), “Are human cultural differences superimposed upon a universal human nature? The appeal to an essentialist concept of human nature is a defensive reaction the legacy of racist science left by Darwin’s argument in ‘The Descent of Man.’ Humans are made to appear different in degree from their evolutionary antecedents by attributing the movement of history to a process of culture that differs in kind from the biological process of evolution. The specifications of evolved human nature are supposed to lie in the genes. However human capacities are not genetically specified but emerge within processes ontogenetic development. Moreover the circumstances of development are continually shaped through human activity. There is consequently no human nature that has escaped the current of history.” ~(Evolutionary Epistemology, Language and Culture, Volume 39 of the series Theory and Decision Library A: pp 259-281) For economists to assume a human nature and its parts as essential and unchangeable is simply one more sign of economists’ lack of sophistication and desperation to fit humans into a closed system. No way this fits with science or scientists. One more signal that economists have no interest in performing scientific work.

  3. robert locke
    January 8, 2017 at 2:19 pm

    The advice we can give this year is the same that historians were giving in seminars about historiography a hundred years ago. All we have is history and history itself is subjectivism, which can only be partially surmounted by a serious study of sources constantly discussed by people knowledgeable about them.

    • January 9, 2017 at 6:25 am

      Robert, agree, mostly. Two points. First, need to be careful with the term “subjectivism.” In many instances today it is not used as you suggest. But rather as a pejorative to suggest whatever argument is being attacked has no basis in fact and is just an opinion. Second, many statements of supposed “truth” today are simply self-serving attempts to win an argument or convince people to accept a certain point of view. They do not involve any “serious study of sources.” In fact, those who argue this way often claim no study of sources is needed. Just good old common sense will show us what’s correct. But historians have shown again and again how spurious such arguments are. Too bad most of the population in the US don’t read the works of historians. Or, economists for that matter.

      • robert locke
        January 9, 2017 at 4:33 pm

        I agree. The subjectivism I refer to is one based on facts that cannot be reliably established because of lacunae in the sources, or suppositions that leave out factors they would change conclusions if included. That is what the discussion is all about.

      • January 11, 2017 at 9:12 am

        Your answer brings up the other big problem with the term subjectivism. It depicts some facts as imperfect and incomplete for the reasons you cite, but depicts others as not having these limitations. This is the major error of the view of science in much of conservative philosophy and policy. They claim science only deals with facts that are “really” facts. That are fixed and unchallengeable. But no facts ever reach this level. That’s more easily recognized in historical work. But it’s just as much the case with scientific work.

  4. January 11, 2017 at 11:33 am

    To give Keynes’s concluding paragraph a concrete reference in electronics, a pile of components tells you very little, but the same components built into a circuit will have a specific and determinable function. Hence the significance of Lars’ claim: “If economic regularities obtain they do it as a rule only because we engineered them for that purpose”.

    While I’m sympathetic to Cartwright’s advice to “hedge our bets heavily”, if the outcome of success with Plan A is likely to be much better than that of Plan B it may be better to keep on learning as one has experience of it, and re-engineer the situation “on the hoof”.

    • January 12, 2017 at 9:50 am

      But how likely is likely? Circuit board design involves lots of trial and error. And lots of per Cartwright hedging our bets heavily. How likely one design is to be “better” than another is often, sometimes impossible to estimate. Such decisions only come with experience. Engineers in fact depend on this experiential testing. With economics and social life the uncertainty is greater. Thus, experiential testing is even more crucial. The formulas used to bias economic and social arrangements in favor of one group or outcome over others have been tested experientially for over 500 years. Using these today to design political and economic policies that favor corporations and the wealthiest is no longer experimental. As can be seen in the way such formulas are taken for granted as scientifically true and natural. As certain and fixed, and part of the “real” world.

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