Haavelmo on economic “laws”22 August, 2012 at 15:01 | Posted in Statistics & Econometrics | Leave a comment
With the completion – in 1958 – of the twenty-fifth volume of Econometrica, Trygve Haavelmo took the opportunity of making an assessment of the role of econometrics in the advancement of economics. Although mainly positive of the “repair work” and “clearing-up work” done, Haavelmo also found some grounds for despair:
We have found certain general principles which would seem to make good sense. Essentially, these principles are based on the reasonable idea that, if an economic model is in fact “correct” or “true,” we can say something a priori about the way in which the data emerging from it must behave. We can say something, a priori, about whether it is theoretically possible to estimate the parameters involved. And we can decide, a priori, what the proper estimation procedure should be … But the concrete results of these efforts have often been a seemingly lower degree of accuracy of the would-be economic laws (i.e., larger residuals), or coefficients that seem a priori less reasonable than those obtained by using cruder or clearly inconsistent methods.
There is the possibility that the more stringent methods we have been striving to develop have actually opened our eyes to recognize a plain fact: viz., that the “laws” of economics are not very accurate in the sense of a close fit, and that we have been living in a dream-world of large but somewhat superficial or spurious correlations.