Why economic models do not give us explanations

13 Jul, 2019 at 13:01 | Posted in Economics | 2 Comments

Unicorn-2Economic models frequently invoke … entities that do not exist, such as perfectly rational agents, perfectly inelastic demand functions, and so on. As economists often defensively point out, other sciences too invoke non-existent entities, such as the frictionless planes of high-school physics. But there is a crucial difference: the false-ontology models of physics and other sciences are empirically constrained. If a physics model leads to successful predictions and interventions, its false ontology can be forgiven, at least for instrumental purposes — but such successful prediction and intervention is necessary for that forgiveness … The idealizations of economic models, by contrast, have not earned their keep in this way. So the problem is not the idealizations in themselves so much as the lack of empirical success they buy us in exchange. As long as this problem remains, claims of explanatory credit will be unwarranted.

A. Alexandrova & R. Northcott

2 Comments

  1. The epistemology is clear enough, if you care to examine it: all information derives from differences, contrasts. If an analytic model supplies the essential logic to build an operational model, what the operational model let’s us do is measure the difference, the deviation from an idealization.
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    No physicist or engineer imagines that Euler’s equations for the force equilibrium affecting a plane deflecting a fluid in motion constitutes the design of an airfoil. An important part of the essential logic is revealed in Euler’s analysis, a derivation from the constraint supplied by conservation of mass, momentum and energy.
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    Euler’s remarkable contribution to fluid dynamics is necessary to understanding and designing a practical airplane wing. But, there are some additional steps involved: building an actual airfoil, modeling that specific design and measuring the performance in a wind tunnel. Which means measuring deviations from the structured ideal of the operational model applied.
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    There is a longer chain of reason and experiment required than contemplated by economists who are satisfied to analyze the simple ideal known as “perfect competition” and then wave a hand at the world beyond the classroom window saying something vague about “large numbers” of buyers and sellers being “like” the ideal.
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    The ultimate objective in science is to learn about the world, to test the world.
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    Science presumes the world is a logical place, constrained in its systems and order by functional relations of logical necessity. We cannot directly and unaided by apparatus and imagination simply observe that logic directly. We must think it thru before we venture to go and see. But, having thought thru some logic to some small degree does not exempt us from going to look. The odd bits of logic are not knowledge of the world. At best, they may serve as a means to try the logic of the world.
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    The reluctance of economists to study the actual institutional economy is inexplicable in scientists and only slightly understandable in theologians.

    • Simon Newcomb had an analytical model that proved heavier-than-air flight was impossible.
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      From https://en.wikipedia.org/wiki/Simon_Newcomb#On_the_impossibility_of_a_flying_machine
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      In the October 22, 1903, issue of The Independent, Newcomb made the well-known remark that “May not our mechanicians . . . be ultimately forced to admit that aerial flight is one of the great class of problems with which man can never cope, and give up all attempts to grapple with it?”,[16][17] completed by the motivation that even if a man flew he could not stop. “Once he slackens his speed, down he begins to fall. Once he stops, he falls as a dead mass.” He had no concept of an airfoil. His “aeroplane” was an inclined “thin flat board”. He therefore concluded that it could never carry the weight of a man.


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