Home > Uncategorized > Econometrics — still lacking valid ontological foundations

Econometrics — still lacking valid ontological foundations

from Lars Syll

Important and far-reaching problems still beset regression analysis and econometrics — many of which basically is a result of unsustainable ontological views.

complex-research-terminology-simMost econometricians have a nominalist-positivist view of science and models, according to which science can only deal with observable regularity patterns of a more or less lawlike kind. Only data matters and trying to (ontologically) go beyond observed data in search of underlying real factors and relations that generate the data is not admissible. All have to take place in the model of the econometric mind, since the real factors and relations according to the econometric (epistemologically based) methodology are beyond reach, since they, allegedly, are both unobservable and unmeasurable. This also means that instead of treating the model-based findings as interesting clues for digging deeper into real structures and mechanisms, they are treated as the endpoints of the investigation.

As mathematical statistician David Freedman writes in Statistical Models and Causal Inference (2010): 

In my view, regression models are not a particularly good way of doing empirical work in the social sciences today, because the technique depends on knowledge that we do not have. Investigators who use the technique are not paying adequate attention to the connection – if any – between the models and the phenomena they are studying. Their conclusions may be valid for the computer code they have created, but the claims are hard to transfer from that microcosm to the larger world …

freedman2Given the limits to present knowledge, I doubt that models can be rescued by technical fixes. Arguments about the theoretical merit of regression or the asymptotic behavior of specification tests for picking one version of a model over another seem like the arguments about how to build desalination plants with cold fusion and the energy source. The concept may be admirable, the technical details may be fascinating, but thirsty people should look elsewhere …

Causal inference from observational data presents may difficulties, especially when underlying mechanisms are poorly understood. There is a natural desire to substitute intellectual capital for labor, and an equally natural preference for system and rigor over methods that seem more haphazard. These are possible explanations for the current popularity of statistical models.

Indeed, far-reaching claims have been made for the superiority of a quantitative template that depends on modeling – by those who manage to ignore the far-reaching assumptions behind the models. However, the assumptions often turn out to be unsupported by the data. If so, the rigor of advanced quantitative methods is a matter of appearance rather than substance.

If econometrics is to progress it has to abandon its outdated nominalist-positivist view of science and the belief that science can only deal with observable regularity patterns of a more or less law-like kind. Scientific theories do more than just describe event-regularities and patterns — they also analyze and describe the mechanisms, structures, and processes that give birth to these patterns and eventual regularities.

  1. December 7, 2017 at 3:31 am

    Lars Syll >> Scientific theories do more than just describe event-regularities and patterns — they also analyze and describe the mechanisms, structures, and processes that give birth to these patterns and eventual regularities.

    I completely agree with Lars Syll. We should learn again how modern science developed.

  2. Craig
    December 7, 2017 at 7:13 am

    The Levels of Depth of Effect of Thinking/Discovery In Any Body of Knowledge (Ascending)

    New Zeitgeist/Ethic

    New Paradigm

    New Philosophy

    New Theory

    New Structural Reform/Policy

    New Data

    It is obvious from this chart that a new paradigm would have the greatest effects on both philosophy and policy exceeded only by a new zeitgeist/ethic which is simply the ongoing and increasing awareness and agreement by everyone that the new paradigm was well and good.

    Also, every level below paradigm change exists wholly or partially within the current/old paradigm and so is subject to its blinding and hypnotizing influence both temporally/structurally and mentally.

    Finally, the fact that Wisdom is the integration of opposites and the mind of man has come to look upon science as an ultimate truth, an unimpeachable and singular truth….some of the very virtues of science can actually militate against….the very process and the considerable mental benefits of Wisdom. In other words the logicality of science (its reductionistic process and dualistic dedication to the truthfulness or lack thereof of DATA) can mistakenly inhibit and even prejudice one against Wisdom and its NON-DATA insights.

  3. Frank Salter
    December 7, 2017 at 7:19 am

    I agree with both the original blog and Yoshinori Shiozawa’s comment. I also believe that we can identify where conventional analysis fails. The mathematics in general use is essentially linear. While one encounters Leibniz and Newton’s notations, economists’ treatments of the equations, they themselves introduce, usually do not include actually solving those equations. At this point, regression is introduced and only a description of the data obtained — job apparently finished! However, it is the solutions of the differential equations which ‘describe the mechanisms, structures, and processes’ discussed.

    Applying that final step is ‘how modern science developed’.

  4. December 7, 2017 at 10:51 am

    My take on this is that accept the mainstream view of econometrics, but only locally. The hard bit can be delineating the locales (aka epochs), although sometimes it is obvious (as in 2007/8). One then has law-like locales perhaps separated by periods of irregularity. One can sometimes consider different locales together, as variations on some over-arching law, but often there simply isn’t enough data to this, so one can only speculate. This is where the social sciences differ from the ‘hard’ sciences.

    This seems better than either trying to fit a single model/law and may amount to the same thing as Lars advocates.

    • Craig
      December 7, 2017 at 4:44 pm

      @Frank Salter

      I’m four square for both science and mathematics, and differential equations in mathematics as well, but none of those has enabled even the most cutting edge economists to recognize the new monetary and economic paradigm. They stand looking at it and yet at best recommend an aspect of it or a one off reductionist policy to deal with an area of the economy.

      It is no coincidence that good science is open minded science, and that the signature of scientific breakthrough is the integration of the scientific method and an aspect or aspects of consciousness like imagination, creativity, intuition, cognition, etc. It is also no coincidence that the process of Wisdom is the discerning of the truths in apparent opposites. In fact Science and Wisdom are the same process except science tends to habituate reductive conclusions while Wisdom recognizes their holistic counterparts.

      All of the best science and reforms leading up to the Copernican Helio-Centric paradigm change were mere epicycles, and traditional science and mathematics in economics will be exactly the same…until they utilize the processes of Wisdom to consciously perceive the more holistic mindsets of philosophy and paradigm perception.

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