Home > Uncategorized > Is economics nothing but a library of models?

Is economics nothing but a library of models?

from Lars Syll

Chameleons arise and are often nurtured by the following dynamic. First a bookshelf model is constructed that involves terms and elements that seem to have some relation to the real world and assumptions that are not so unrealistic that they would be dismissed out of hand. monocle_chameleon_2The intention of the author, let’s call him or her “Q,” in developing the model may be to say something about the real world or the goal may simply be to explore the implications of making a certain set of assumptions … If someone skeptical about X challenges the assumptions made by Q, some will say that a model shouldn’t be judged by the realism of its assumptions, since all models have assumptions that are unrealistic …

Chameleons are models that are offered up as saying something significant about the real world even though they do not pass through the filter. When the assumptions of a chameleon are challenged, various defenses are made (e.g., one shouldn’t judge a model by its assumptions, any model has equal standing with all other models until the proper empirical tests have been run, etc.). In many cases the chameleon will change colors as necessary, taking on the colors of a bookshelf model when challenged, but reverting back to the colors of a model that claims to apply the real world when not challenged.

Paul Pfleiderer

As we all know, economics has become a model-based science. And in many of the methodology and philosophy of economics books published during the last two decades, this is seen as something positive.

In Dani Rodrik’s Economics Rules (OUP 2015) — just to take one illustrative example — economics is looked upon as nothing but a smorgasbord of ‘thought experimental’ models. For every purpose you may have, there is always an appropriate model to pick. The proliferation of economic models is unproblematically presented as a sign of great diversity and abundance of new ideas:

Rather than a single, specific model, economics encompasses a collection of models … Economics is in fact, a collection of diverse models …The possibilities of social life are too diverse to be squeezed into unique frameworks. But each economic model is like a partial map that illuminates a fragment of the terrain …

Different contexts … require different models … The correct answer to almost any question in economics is: It depends. Different models, each equally respectable, provide different answers.

But, really, there have​ to be some limits to the flexibility of a theory!

If you freely can substitute any part of the core and auxiliary sets of assumptions and still consider that you deal with the same theory, well, then it’s not a theory, but a chameleon picked from your model library.

The big problem with the mainstream cherry-picking view of models is of course that the theories and models presented get totally immunized against all critique.  A sure way to get rid of all kinds of ‘anomalies,’ yes, but at a far too high price. So people do not behave optimizing? No problem, we have models that assume satisficing! So people do not maximize expected utility? No problem, we have models that assume … etc., etc …

Clearly, it is possible to interpret the ‘presuppositions’ of a theoretical system … not as hypotheses, but simply as limitations to the area of application of the system in question. Since a relationship to reality is usually ensured by the language used in economic statements, in this case the impression is generated that a content-laden statement about reality is being made, although the system is fully immunized and thus without content. In my view that is often a source of self-deception in pure economic thought …

200px-Hans_Albert_2005-2A further possibility for immunizing theories consists in simply leaving open the area of application of the constructed model so that it is impossible to refute it with counter examples. This of course is usually done without a complete knowledge of the fatal consequences of such methodological strategies for the usefulness of the theoretical conception in question, but with the view that this is a characteristic of especially highly developed economic procedures: the thinking in models, which, however, among those theoreticians who cultivate neoclassical thought, in essence amounts to a new form of Platonism.

Hans Albert

A theory that accommodates any observed phenomena whatsoever by creating a new special model for the occasion, and a fortiori having no chance of being tested severely and found wanting, is of little or no real value at all.

  1. December 7, 2022 at 3:17 am

    “… is of little or no real value at all.”

    Well let’s be clear. It is pseudo-science, of negative value because it is misleading. It is certainly not science.

    That such prominent people can be so clueless.

    Oh this dead horse does get a work-over.

    • Meta Capitalism
      December 8, 2022 at 2:21 am

      Just ordered your book Stories from the Deep Earth. Looking forward to reading it. Unfortunately, many still believe in pseudoscience and many more don’t even know it is pseudoscience. Just look on this blog and you can see examples of those who still think GET is still just fine — in theory — while they elide the very real issues in junk mathematics traded as reality by breaking mathematical sense divorced for real-world reality.

  2. yoshinorishiozawa
    December 8, 2022 at 3:37 am

    have you read the paper by Philip George “The giant blunder at the heart of General Equilibrium Theory” that was published in the RWER #101?

    George claims he has found a giant blunder to the General Equilibrium Theory (GET) on the ground that the equilibrium price “vector” is not a vector because it does not satisfy the axioms of vector space (more exactly, he must be saying it is not a point of a vector space). I am always against GET, but I do not admit this kind of irrational accusation. I have posted my opinion why why this accusation is based on misunderstandings in detail as comments to the article “The real economy is never in equilibrium” posted on December 5, 2022, just below your article in this Blog page. To resume it, a set of equilibrium prices is only a representative of relative prices and whether it is a vector or not is irrelevant to the core of GET. And yet, George claims he found a giant blunder to GET.

    You repeated to suggest the irrelevance of usage of mathematics in economics. I also believe that the framework of mainstream economics is irrelevant to the economy. But, the GET of Arrow and Debreu, or more precisely the existence theory of a competitive equilibrium, is as perfect as other modern mathematics. There is no logical flaw as matematics.

    Gorge’s Blunder paper case must be a rare exception. Even though, there remains the fact that RWER published the paper and the “editor” of this blog presented without caution an excerpt of George’s paper with the title “The real economy is never in equilibrium”. (This title is almost irrelevant to what George contended in his paper.) I believed RWER and this blog page were a good forum of discussions for constructing a new heterodox economics, but my believe is fading out.

    Don’t you feel some responsibility for this affair? You did not distinguished the exact logic of mathematics and the irrelevance of its applications in sciences like economics. I feel many people came to have disrespect of mathematics and logic. I do not demand that all people adore mathematics. There is no problem that many people argue without mathematics. It is not easy to reason logically. The world is complex and we often face phenomena that are hard to explain logically. Even though, generally speaking, mainstream economics retains a certain level of logical discourse. To persuade neoclassical economists (or future economists) that their economics (that they are studying) is bad, it is not a good method to deploy illogical reasonings (like Philip George). To persuade mainstream economists or students, it is necessary to show them that we understand the logic of their theories and point out how their theories are flawed.

    • Meta Capitalism
      December 8, 2022 at 4:15 am

      No authors on RWER, nor pretty much any author from the books published by RWER that I have read, have made the argument, even remotely, that it is right or necessary or appropriate to denounce “mathematics generally” or remotely suggested the use of mathematics in economics is “irrelevant.”

      Shiozawa’s meretricious rhetoric lacks fundamental integrity in that he knows this already but chooses to elide the actual substance of an author’s argument and to use disingenuous rhetoric to attempt to mislead others to believe his bullshit, which is not true nor faithfully represents the arguments of many authors in the right-hand-side, including Lars. I can only conclude this kind of disingenuous rhetorical shifting of meanings by Shiozawa is for self-serving purposes, i.e., to hawk his pet theory never bothering to either read or fairly and professionally represent what is actually being said.

      Lars has many times been explicitly clear on his views regarding maths and economics. Rather, he has eloquently expressed the ways that mathematics can be abused and misused. This is not ‘anti-math’ economics as Shiozawa falsely claims. That Shiozawa is unable to face the reality that mathematics can be abused and misused as a cloaking device for bad science and economics is not Lars’s problem.

      Math per se never has been nor ever will be the problem, but rather a certain kind of fetishization of math that some so-called scientists have exemplified throughout history right up to today. Even mathematicians have the basic common sense to make this distinction. Apparently, Shiozawa is an exception.

      • yoshinorishiozawa
        December 9, 2022 at 1:43 am

        have you read Philip Gorge’s paper The giant blunder at the heart of General Equilibrium Theory? I want to know your opinion on it.

      • rsm
        December 9, 2022 at 5:13 am

        ” […] appropriate to denounce “mathematics generally””

        May I point out the arbitrary, fickle social conventions inherent in the system?

        How appropriate was it to question Hilbert’s program before Gödel managed to sell his objections to a journal?

        Why do mathematicians go on pretending that mathematics is consistent and complete?

        Are there true statements that cannot be proved within mathematics, and why isn’t this a huge problem for any mathematical model?

        Is the answer to my last question “propriety”?

        “Propriety refers to the quality of being appropriate or suitable for a particular situation. It is the state of adhering to social norms, manners, and customs that are considered acceptable in a particular context. Propriety is often associated with good manners, respect, and etiquette. It is often considered a virtue and is important in many social interactions.”

        Do economics writers merely exhibit conformity to fickle social norms by disdaining to challenge “mathematics generally”?

  3. rsm
    December 8, 2022 at 4:48 am

    Why do physicists create a new special model to accommodate observed quantum phenomena, another to describe observed phenomena at our scale, and then invent dark matter to accommodate observed phenomena at galactic scales despite having found wanting their own severe tests for dark matter?

    Why does a meteorologist such as Cliff Mass (please, if interested, search for his blog) sometimes model air flowing down the Cascades as producing heat (because observed phenomena so indicates), but at other times he models falling air as producing cold temperatures because cold air is denser?

    If scientific consensus is a social phenomenon, does all of Lars’ criticisms of social systems modeling apply to science just as much as to economics? In other words, are “hard” scientists just modeling what they think they can sell to other scientists?

  4. Gerald Holtham
    December 18, 2022 at 11:30 pm

    Lars has often written – and for what it’s worth I agree – that there are no general laws in economics. Why then does he assume that economics should have a single (general?) theory? That seems a self-contradictory position. In practice having a library of different models seems a rather sensible way to proceed. That does not immunize anything against critique. The critique applies to the application of a model in the analysis of a particular situation. If the model is inadequate, misleading or abstracts from elements that are important in the situation in question it can and should be criticized very hard. The fact that the model might conceivably be useful in a different situation is no defence of its misuse. The great vice in economics, we can agree, is the unreflective application of over-simple models to real questions. Still, even a model that its adequate for a particular purpose is probably composed using insights from simpler models that were then modified to suit the circumstance at hand.
    How else is one supposed to proceed?

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