Kenneth Arrow on uncertainty and “trailing clouds of vagueness”
17 January, 2013 at 20:49 | Posted in Economics | 5 CommentsIn a very personal discussion of uncertainty and the hopelessness of accurately modeling what will happen in the real world, Nobel laureate Kenneth Arrow – in “I Know a Hawk From a Handsaw,” in M. Szenberg, ed., Eminent Economists: Their Life Philosophies, Cambridge University Press (1992) – writes:
It is my view that most individuals underestimate the uncertainty of the world. This is almost as true of economists and other specialists as it is of the lay public. To me our knowledge of the way things work, in society or in nature, comes trailing clouds of vagueness … Experience during World War II as a weather forecaster added the news that the natural world as also unpredictable.
An incident illustrates both uncertainty and the unwilling-ness to entertain it. Some of my colleagues had the responsi-bility of preparing long-range weather forecasts, i.e., for the following month. The statisticians among us subjected these forecasts to verification and found they differed in no way from chance. The forecasters themselves were convinced and requested that the forecasts be discontinued. The reply read approximately like this: ‘The Commanding General is well aware that the forecasts are no good. However, he needs them for planning purposes.’
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the problem with weather forecast is that there are an infinite number of different trajectories. That number also increase with time ie days hence making it impossible to forecast anything except for I guess today etc….
Comment by davidssonmarcus— 17 January, 2013 #
The real issue with weather forecasts is that they are trying to predict specific performance of a complex, non-linear dynamic system that exhibits extreme sensitivity to the initial state. Please see my post at: http://somewhatlogically.com/?p=785, which will give you links to the American Institute of Physics website on climate modeling and chaos theory, as well as sites for NOAA and Weatherwise which show how seemingly small interactions over the Pacific can produce locally devastating snowstorms in New England and giant hailstorms in Texas, just as, relating to economics, the waving of a transaction in London (by the Whale) can induce multi-billion dollar losses in N.Y.
Comment by JRHulls— 17 January, 2013 #
I tend to agree with this! “complex, non-linear dynamic system that exhibits extreme sensitivity to the initial state” A butterfly flap in Asian leading to a tornado i USA hence chaos (not randomness ie chaos is deterministic). The “forecasts” are equally ridiculous though!
Comment by davidssonmarcus— 17 January, 2013 #
Another way to look at it is that from statistical analysis, one can say with a high degree of confidence that it is likely to be hot in Texas on August 15th but to develop a model that attempts to tell you just how hot it will be runs afoul of the sensitivity to initial conditions and the resultant chaotic behavior if you go much beyond a few days forecasting horizon.
Comment by JRHulls— 18 January, 2013 #
“The reply read approximately like this: ‘The Commanding General is well aware that the forecasts are no good. However, he needs them for planning purposes.’”
ROFL
This is manifestly the case wrt to mainstream economics and policy formulation. It’s justification of ideology.
Comment by Tom Hickey— 18 January, 2013 #