Flimflam Chicago economics9 June, 2016 at 09:21 | Posted in Economics | Leave a comment
The people inside the model have much more knowledge about the system they are operating in than is available to the economist or econometrician who is using the model to try to understand their behavior. In particular, an econometrician faces the problem of estimating probability distributions and laws of motion that the agents in the model are assumed to know. Further the formal estimation and inference procedures of rational expectations econometricians assumes that the agents in the model already know many of the objects the econometrician is estimating.
Making utterly ridiculous restrictive model assumptions on rationality, information, and cognition, makes it possible for Chicago economists to describe the world as an instantiation of a FORTRAN program.
Yes, indeed. And at asylums there are people who think they are Napoleon and that the moon is made of green cheese …