Home > Uncategorized > Your model is consistent? So what!

Your model is consistent? So what!

from Lars Syll

In the realm of science it ought to be considered of little or no value to simply make claims about the model and lose sight of reality.

errorineconomicsThere is a difference between having evidence for some hypothesis and having evidence for the hypothesis relevant for a given purpose. The difference is important because scientific methods tend to be good at addressing hypotheses of a certain kind and not others: scientific methods come with particular applications built into them … The advantage of mathematical modelling is that its method of deriving a result is that of mathemtical prof: the conclusion is guaranteed to hold given the assumptions. However, the evidence generated in this way is valid only in abstract model worlds while we would like to evaluate hypotheses about what happens in economies in the real world … The upshot is that valid evidence does not seem to be enough. What we also need is to evaluate the relevance of the evidence in the context of a given purpose.

Even if some people think that there has been a kind of empirical revolution in economics lately, I would still argue that empirical evidence only plays a minor role in economic theory, where models largely function as a substitute for empirical evidence. The one-sided, almost religious, insistence on axiomatic-deductivist modeling as the only scientific activity worthy of pursuing in economics, still roosts the roost.

Ct7x3eOVMAA25klBut mainstream economists’ belief that theories and models being ‘consistent with’ data will somehow make the theories and models a success story, is nothing but an empty hope. Mere consistency with the facts is never sufficient to prove models or theories true. The fact that US presently has a president named Donald Trump, is ‘consistent with’ US being a democracy — but that  doesn’t in any way whatsoever explain why a witless clown came to be elected to a post previously held by people like George Washington and Thomas Jefferson.

Theories and models are always ‘under-determined’ by facts. So a good way to help us choose between different ‘consistent’ theories and models is to actually look at what happens out there in the economy and why it happens.

History and good ordinary social science can also help us. And if we’re not to busy doing the things we do, but once in a while take a brake and do some methodological reflection on why we do what we do — well, that takes us a long way too

  1. March 27, 2017 at 1:07 am

    “In the realm of science it ought to be considered of little or no value to simply make claims about the model and lose sight of reality.”

    Not “ought to be”. Is.

    People who only make mathematical models are not doing science. Mainstream economics is not science, it is mathematical masturbation.

    • March 27, 2017 at 11:23 am

      Climate scientists depend on mathematical models for at least part of their work result. The difference I think is these scientists backcast the models constantly to check their validity. The thinking is if the model can accurately duplicate the past, it is useful for forecasting the future. The climate equations are more complex than those in economic models but the same principle should apply for economic modeling. Do economists do any backcasting with their models?

      • Jeff Z
        March 27, 2017 at 4:24 pm

        Ken, some do, some don’t. The fact that it is often not clear is a distinct weakness. Some will follow a similar procedure, and split a set of data into two. They will typically run econometric tests on a “randomly” chosen half, and check the predicted parameter values using the other half.

        There are flaws with this, of course. One of the big ones is the one that appears in all prospectuses for investment in stocks, bonds, Mutual funds etc. “Past performance is no guarantee of future results.”

      • March 28, 2017 at 5:17 am

        Jeff Z, it is more difficult due to the historicality of data to backcast social science models (including economics). This alone should recommend caution in using and basing predictions and policy on social science (including economics) models. But even with historically variable data, backcasting big events such as recessions, market collapses, employment level should be possible. And should be used to check social science models. Models that cannot duplicate the past (with a margin of error) should not be used for research and certainly not for policy making. Are you telling me economists make this mistake? If so, that’s not just useless and unscientific, but also dangerous in terms of impacts on the lives of “real” people and societies. Such actions are also unethical. No ethical social scientist would be or should be allowed to place people and communities in jeopardy just to test a theory, any theory.

  2. March 27, 2017 at 3:21 am

    “But mainstream economists’ belief that theories and models being ‘consistent with’ data will somehow make the theories and models a success story, is nothing but an empty hope. Mere consistency with the facts is never sufficient to prove models or theories true.”

    Economic theories and models are INCONSISTENT with data, otherwise they would have been a success. It is well-known that theories and models can NEVER be proved true, but they can be proved false. All economic theories so far have been proven false, but this fact has been ignored.

  3. March 27, 2017 at 7:23 am

    Lars Syll and the consistency of methodological moronism
    Comment on Lars Syll on ‘Your model is consistent? So what!’

    Lars Syll is harping on one of most idiotic stereotypes ever, that is, that a theory is something that is detached from reality. It is just the opposite. The fact of the matter is that a materially/formally consistent theory is the best mental representation of reality that is humanly possible. The true theory incorporates knowledge and all the rest of human communication is mere opinion, belief, storytelling, wish-wash, gossip, sitcom blather, tautological triviality, commonsensical delusion, or disinformation.

    The misleading idea that there could be a conflict between ‘theory and practice’ is very old and immensely popular among laypersons. So much so that Kant bothered to refute it in an essay, first published in 1793, with the title ‘On the Old Saw: That May be Right in Theory But It Won’t Work in Practice.’ Kant exploded the silly saw with the famous punch-line “There is nothing as practical as a good theory.” So Lars Syll is 200+ years behind the curve.

    It is, for example, absolutely irrelevant whether the economist Kenneth Arrow “was a model academic ― brilliant, creative, precise, unfailingly modest.” (Buchanan) What is alone relevant is whether his economic theory is true or false: “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)

    The fact of the matter is that Arrow’s theory is materially and formally inconsistent. Therefore, his General Equilibrium Theory is forever scientifically unacceptable. It is what Feynman famously called cargo cult science. As methodologists know very well: “At long last, it can be said that the history of general theory from Walras to Arrow-Debreu has been a journey down a blind alley, and it is historians of economic thought who seem to have finally hammered down the nails in this coffin. … General theory is simply a research program that has run into the sands.” (Blaug)

    Arrow’s General Equilibrium Theory is inapplicable NOT because it is a theory but because it is a FALSE theory, i.e. it is materially and formally inconsistent. Equilibrium economics has already been dead in the cradle 140+ years ago. The miracle of economics is that the representative economist has until this very day not realized that he is perpetuating proto-scientific crap. This applies to Orthodoxy AND Heterodoxy.

    Egmont Kakarot-Handtke

  4. March 27, 2017 at 5:39 pm
  5. Craig
    March 27, 2017 at 8:51 pm

    If economic theories cannot be proven correct, which is true, then the correct and wise thing to do is to focus on the best, most beneficial for all economic philosophy and its aligned policies. In other words look/think/integrate and do not fail to act….to correct the economy’s historically problematic facts/areas. Market worship and any other present orthodoxy then is exposed as irresponsibility and/or conscious or unconscious defense of the status quo. Here’s a short list of such problematic facts/areas:

    1) Chronic/continual scarcity of individual income
    2) Chronic inflation
    3) The monopolistic dominance of Finance’s monetary paradigms of Debt, Loan and For Production Only (This has been problematic for at least the last 5000 years)

    One last little hint: Integration/Wisdom has always been the process of resolving opposites in a way that combines their particles of truth, workabilities and highest ethical considerations and simultaneously deletes their untruths etc.

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