Dani Rodrik and not so transparent user’s guides to models (V)19 December, 2015 at 18:55 | Posted in Economics | Leave a comment
In Dani Rodrik’s Economics Rules it is argud that ‘the multiplicity of models is economics’ strength,’ and that a science that has a different model for everything is non-problematic, since
economic models are cases that come with explicit user’s guides — teaching notes on how to apply them. That’s because they are transparent about their critical assumptions and behavioral mechanisms.
That really is at odds with yours truly’s experience from studying mainstream economic models during four decades.
When, e. g., criticizing the basic (DSGE) workhorse macroeconomic model for its inability to explain involuntary unemployment, its defenders maintain that later ‘successive approximations’ and elaborations — especially newer search models — manage to do just that. However, one of the more conspicuous problems with those ‘solutions,’ is that they — as e.g. Pissarides’ ‘Loss of Skill during Unemployment and the Persistence of Unemployment Shocks’ QJE (1992) — are as a rule constructed without seriously trying to warrant that the model immanent assumptions and results are applicable in the real world. External validity is more or less a non-existent problematique sacrificed on the altar of model derivations. This is not by chance. These theories and models do not come at all with the transparent and ‘explicit user’s guides’ that Rodrik maintains they do. And there’s a very obvious reason for that. For how could one even imagine to empirically test assumptions such as Pissarides’ ‘model 1’ assumptions of reality being adequately represented by ”two overlapping generations of fixed size”, ”wages determined by Nash bargaining”, ”actors maximizing expected utility”,”endogenous job openings”, ”jobmatching describable by a probability distribution,” without coming to the conclusion that this is — in terms of realism and relevance — far from ‘good enough’ or ‘close enough’ to real world situations?
Suck on that — and tell me if those typical mainstream neoclassical modeling assumptions in any possibly relevant way — with or without due pragmatic considerations — can be considered anything else but imagined model worlds assumptions that has nothing at all to do with the real world we happen to live in!
Here is no real transparency as to the deeper significance and role of the chosen set of axiomatic assumptions.
Here is no explicit user’s guide or indication of how we should be able to, as Rodrik puts it, ‘discriminate’ between the ‘bewildering array of possibilities’ that flow out of such outlandish and known to be false assumptions.
Theoretical models building on piles of known to be false assumptions are in no way close to being scientific explanations. On the contrary. They are untestable and a fortiori totally worthless from the point of view of scientific relevance.