Overconfident economists

20 Jan, 2015 at 13:14 | Posted in Statistics & Econometrics | 1 Comment

We economists trudge relentlessly toward Asymptopia, where data are unlimited and estimates are consistent, where the laws of large numbers apply perfectly and where the full intricacies of the economy are completely revealed … Worst of all, when we feel pumped up with our progress, a tectonic shift can occur, like the Panic of 2008, making it seem as though our long journey has left us
disappointingly close to the State of Complete Ignorance whence we began …

overconfidenceWe may listen, but we don’t hear, when the Priests warn that the new direction is only for those with Faith, those with complete belief in the Assumptions of the Path. It often takes years down the Path, but sooner or later, someone articulates the concerns that gnaw away in each of us and asks if the Assumptions are valid …

It would be much healthier for all of us if we could accept our fate, recognize that perfect knowledge will be forever beyond our reach and find happiness with what we have …

Can we economists agree that it is extremely hard work to squeeze truths from our data sets and what we genuinely understand will remain uncomfortably limited? We need words in our methodological vocabulary to express the limits … Those who think otherwise should be required to wear a scarlet-letter O around their necks, for “overconfidence.”

Ed Leamer

1 Comment

  1. One word to express uncertainty that I find missing in economic discourse intended for public consumption is “error”. How often have I seen scary economics graphs where, upon inspection, the scary part lies in the future. Nowhere are such graphs accompanied by the phrase “error estimates”.

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