Home > Uncategorized > Does it — really — take a model to beat a model? No!

Does it — really — take a model to beat a model? No!

from Lars Syll

Many economists respond to criticism by saying that ‘all models are wrong’ … But the observation that ‘all models are wrong’ requires qualification by the second part of George Box’s famous aphorism — ‘but some are useful’ … The relevant  criticism of models in macroeconomics and finance is not that they are ‘wrong’ but that they have not proved useful in macroeconomics and have proved misleading in finance.

kaykingWhen we provide such a critique, we often hear another mantra to which many economists subscribe: ‘It takes a model to beat a model.’ On the contrary, we believe that it takes facts and observations to beat a model … If a model fails to answer the problem to which it is addressed, it should be put back in the toolbox … It is not necessary to have an alternative tool available to know that the plumber who arrives armed only with a screwdriver is not the tradesman we need.

A similar critique yours truly sometimes encounters is that as long as I cannot come up with some own alternative model to the failing mainstream models, I shouldn’t expect people to pay attention.

This is, however, not only wrong for the reasons given by Kay and King, but is also to utterly misunderstand the role of philosophy and methodology of economics!

Clearing obstacles to science by clarifying limits and consequences of choosing specific modelling strategies, assumptions, and ontologies — that’s what philosophy and methodology can contribute to economics.

unnameadIt takes a model to beat a model has to be one of the stupider things, in a pretty crowded field, to come out of economics … I don’t get it. If a model is demonstrably wrong, that should surely be sufficient for rejection. I’m thinking of bridge engineers: ‘look I know they keep falling down but I’m gonna keep building them like this until you come up with a better way, OK?’

Jo Michell

Commenting on my critique of mainstream economics some colleagues argue that if we are going be taken seriously we also need to come up with a new and better theory. This is what Joan Robinson has to say on the issue:

It is often said that one theory can be driven out only by another; the neoclassicals have a complete theory (though I maintain it is nothing but a circular argument) and we need a better theory to supplant them. I do not agree. I think any other ‘complete theory’ would be only another box of tricks. What we need is a different habit of mind — to eschew fudging, to respect facts and to admit ignorance of what we do not know.

  1. February 12, 2021 at 12:54 am

    Are models always required?
    Does an empirical study on what type of assets could generate those excessive bank exposures that could be dangerous to our bank system not suffice to know current risk weighted bank capital requirements are as loony as can be?
    https://subprimeregulations.blogspot.com/2021/01/and-academia-kept-silence.html

  2. deshoebox
    February 12, 2021 at 2:36 am

    ….and we don’t really need “another theory”. Economics as currently taught and practiced is not based on a theory. It is based on several demonstrably false premises, such as “People make rational decisions”, “It’s about the allocation of scarce resources”, “Money is a handy and completely neutral basis for transactions between people”, and “Any given distribution of wealth and income is morally indistinguishable from any other”. Oh, and we mustn’t forget, “Economics need not and should not concern itself with moral questions”. To make things worse, economists generally use bad logic to build on these shaky foundations. So we don’t need another theory. What we need is intelligent and compassionate people looking at the world, its people, the myriad species that live here and the conditions under which they live, and work out the best way to provide a healthy, secure, and meaningful life for every person on earth while preserving the natural environment for future generations.

  3. February 12, 2021 at 3:59 pm

    Unfortunately, when discussing theories, everyone has a special case theory in mind. For example, there is a discussion of the theory of firing bricks or the theory of concrete reinforcement, each of which is related to construction, but the theory of building the “economy” building, ideas about its architecture and the structure of the main elements, remain intact. It is unlikely that the choice of technologies and materials will affect the construction of something that we have no idea about. In this sense, the new theories are both useless and useful at the same time, but they absolutely do not change our understanding of the architecture of economics. An entirely new view of economics for the pure thinker is needed, and it must be free from all existing theories. It will not be born out of methodologies or philosophies, it will come as the evidence of our world.

  4. Gerald Holtham
    February 12, 2021 at 5:14 pm

    The proof of the pudding is in the eating, as they say. If you don’t need a model to beat a model why does Lars have to keep repeating his points? Not just Lars, many others, including your truly have been making related points for years. The fact that Lars has to keep repeating himself proves the truth of the statement he wishes to dispute.
    Incidentally, for those interested, the autumn 2020 edition of the journal Oxford Review of Economic Policy has a series of articles about the use of models in economics and their relevance for different users. It won’t satisfy everyone but it shows where economics is at.

    • Meta Capitalism
      February 13, 2021 at 1:26 am

      The proof of the pudding is in the eating, as they say. If you don’t need a model to beat a model why does Lars have to keep repeating his points? Not just Lars, many others, including your truly have been making related points for years. The fact that Lars has to keep repeating himself proves the truth of the statement he wishes to dispute.

      .
      The argument that the truth content of a claim is determined by how few or how many times it is repeated is pure poppycock and rhetorical sophistry. Another example of Gerald slipping from well reasoned argument into nonsense on stilts.

  5. Gerald Holtham
    February 15, 2021 at 7:35 pm

    Meta, you have a talent for missing the point and then being unnecessarily abusive. Lars and many others have pointed out the limitations of much contemporary economics. Yet that economics persists unreformed. That demonstrates that a logical critique is insufficient to “beat a theory”. Something else is evidently needed. What might that be? Take your time.

  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 )

Google photo

You are commenting using your Google 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 )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.