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User guides to models

from Lars Syll

user-guides-5

In Dani Rodrik’s Economics Rules it is argud that ‘the multiplicity of models is economics’ strength,’ and that a science that has a different model for everything is non-problematic, since

economic models are cases that come with explicit user’s guides — teaching notes on how to apply them. That’s because they are transparent about their critical assumptions and behavioral mechanisms.

Hmm …

That really is at odds with yours truly’s experience from studying and teaching mainstream economic models during four decades.

page_1When, e. g., criticizing the basic (DSGE) workhorse macroeconomic model for its inability to explain involuntary unemployment, its defenders maintain that later ‘successive approximations’ and elaborations — especially newer search models — manage to do just that. However, one of the more conspicuous problems with those ‘solutions,’ is that they — as e.g. Pissarides’ ‘Loss of Skill during Unemployment and the Persistence of Unemployment Shocks’ QJE (1992) — are as a rule constructed without seriously trying to warrant that the model immanent assumptions and results are applicable in the real world. External validity is more or less a non-existent problematique sacrificed on the altar of model derivations. This is not by chance. These theories and models do not come at all with the transparent and ‘explicit user’s guides’ that Rodrik maintains they do. And there’s a very obvious reason for that. For how could one even imagine to empirically test assumptions such as Pissarides’ ‘model 1’ assumptions of reality being adequately represented by ”two overlapping generations of fixed size”, ”wages determined by Nash bargaining”, ”actors maximizing expected utility”,”endogenous job openings”, ”jobmatching describable by a probability distribution,” without coming to the conclusion that this is — in terms of realism and relevance — far from ‘good enough’ or ‘close enough’ to real world situations?

Suck on that — and tell me if those typical mainstream neoclassical modeling assumptions in any possibly relevant way — with or without due pragmatic considerations — can be considered anything else but imagined model worlds assumptions that has nothing at all to do with the real world we happen to live in!

Here is no real transparency as to the deeper significance and role of the chosen set of axiomatic assumptions.

Here is no explicit user’s guide or indication of how we should be able to, as Rodrik puts it, ‘discriminate’ between the ‘bewildering array of possibilities’ that flow out of such outlandish and known to be false assumptions.

Theoretical models building on piles of known to be false assumptions are in no way close to being scientific explanations. On the contrary. They are untestable and a fortiori totally worthless from the point of view of scientific relevance.

  1. tyillc
    June 22, 2019 at 6:29 pm

    Favorite from Rodrik were his 10 commandments for non-economists to use when talking with a PhD Economist. Number 2 dealt with the issue of the non-economist pointing out there might be flaws in the assumptions underlying the PhD Economist’s model. http://instituteforfinancialtransparency.com/2018/02/01/phd-economist-derp-the-pretense-of-knowledge/

    • Dave Raithel
      June 23, 2019 at 2:17 pm

      Took a look at the Economist Derp piece, loved the Information Matrix. But I am a simple man.

  2. Frank Salter
    June 24, 2019 at 7:10 am

    Analysis from first principles is the necessary method for solving economic problems.

  3. Ikonoclast
    June 24, 2019 at 7:59 am

    Again, I agree with Lars Syll. Whether my agreement derives from a similar or different ontology I do not know. Certainly, my ontology is quite different from the ontology of conventional economics. The ontology of conventional economics is implicitly that of Cartesian dualism; meaning mechanical and deterministic in the realm of res extensa (extended thing(s), the physical) and spiritually animated in the realm of res cogitans (thought or thinking). A consequent product of thinking that ideas are pure and immaterial (in the Platonic sense) is the belief that ideas may refer to directly to the ideal and the ideal itself is somehow hyper-real or “more real then the real”. If the mind can construct the ideal (like a DSGE model) then the physical reality, and even the social and biosphere realities, can be ordered (in both senses of “order”) to match the ideal. This is the standpoint from which conventional economics operates. It is a profoundly normative and hence un-empirical approach. This un-empirical nature is the issue that Frank Salter points to (I believe) in calling for an analysis from empirical first principles.

    I could say a lot more but I will content myself with this. The implicit ontology of conventional economics is not even worthy of the term “ontology”. It is not a coherent ontology, nor is it a science-congruent ontology, at least not since Darwin and Einstein and all of science and a great deal of philosophy since their time. Conventional economics takes the prize as the last unreconstructed major discipline of the modern era.

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