Say ‘consistent’ one more time and I …

18 Feb, 2021 at 17:19 | Posted in Economics | 10 Comments

Image result for say 'consistent' one more time meme Being able to model a credible world, a world that somehow could be considered ‘similar’ to the real world is not the same as investigating the real world. The minimalist demand on models in terms of ‘credibility’ and ‘consistency’ has to give away to stronger epistemic demands. Claims in a ‘consistent’ model do not per se give a warrant for exporting the claims to real-world target systems.

Questions of external validity are important more specifically also when it comes to microfounded macro models. It can never be enough that these models somehow are regarded as internally consistent. One always also has to pose questions of consistency with the data. Internal consistency without external validity is worth nothing.

Yours truly has for many years been urging economists to pay attention to the ontological foundations of their assumptions and models. Sad to say, economists have not paid much attention — and so modern economics has become increasingly irrelevant to the understanding of the real world.

As long as mainstream economists do not come up with any export-licenses for their theories and models to the real world in which we live, they really should not be surprised if people say that this is not science.

To have ‘consistent’ models and ‘valid’ evidence is not enough. What economics needs are real-world relevant models and sound evidence. Aiming only for ‘consistency’ and ‘validity’ is setting the economics aspirations level too low for developing a realist and relevant science.

Say you are a die hard ‘New Keynesian’ macroeconomist that wants to show that the preferred ‘rigidity’ view on economy is the right one. Then, of course, it is a pretty trivial modelling matter to come up with what ever assumptions that makes it possible for him to construct yet another revised and amended DSGE model that is ‘consistent’ with his preferred view on the economy. But what’s the point in doing that when we all know that the assumptions used are ridiculously unrealistic? Using known-to-be false modelling assumptions you can ‘prove’ anything!

Economics is not mathematics or logic. It’s about society. The real world. And if you want to analyse and explain things in that world you have to build on assumptions that are not known-to-be ridiculously false.

Axioms of ‘internal consistency’ of choice, such as the weak and the strong axioms of revealed preference … are often used in decision theory, micro-economics, game theory, social choice theory, and in related disciplines …

Image result for amartya sen Can a set of choices really be seen as consistent or inconsistent on purely internal grounds, without bringing in something external to choice, such as the underlying objectives or values that are pursued or acknowledged by choice? …

The presumption of inconsistency may be easily disputed, depending on the context, if we know a bit more about what the person is trying to do. Suppose the person faces a choice at a dinner table between having the last remaining apple in the fruit basket (y) and having nothing instead (x), forgoing the nice-looking apple. She decides to behave decently and picks nothing (x), rather than the one apple (y). If, instead, the basket had contained two apples, and she had encountered the choice between having nothing (x), having one nice apple (y) and having another nice one (z), she could reasonably enough choose one (y), without violating any rule of good behavior. The presence of another apple (z) makes one of the two apples decently choosable, but this combination of choices would violate the standard consistency conditions, including Property a, even though there is nothing particularly “inconsistent” in this pair of choices (given her values and scruples) … We cannot determine whether the person is failing in any way without knowing what he is trying to do, that is, without knowing something external to the choice itself.

Amartya Sen


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  1. “Suppose the person faces a choice at a dinner table between having the last remaining apple in the fruit basket..”
    This is a matter that has troubled me for many years.
    Forget the economic theory context of this quandary.
    There, on the plate, is the last piece of fruit, the last piece of chocolate, the last scone, the last biscuit.
    It’s like an elephant sitting in the middle of the table.
    No-one dare say anything. Everybody is surreptitiously eyeing off this last delectable morsel asking themselves: am I prepared to forgo being “polite” and be prepared to not look good/look bad? Is the pleasure of consumption worth the social ignominy?
    It’s tantamount to a mexican standoff.
    If someone else moves first, well you’ve missed out, but then you can enjoy the righteous satisfaction knowing that someone else broke the taboo. Then again, perhaps, this person had the termerity/courage to flout all social convention and is seen as bold and heroic and has enjoyed the pleasure of consumption to boot.
    And if no-one is game enough to bight the bullet and the item of desire is left on the plate then in all likelihood, at the end of the dinner session, the plate is removed from the table and the object of everybody’s desire is likely binned.
    So who benefits then? Was satisfying social harmony and politeness worth the waste?
    All very deeply troubling.

    • Henry, if it was just you and me at the table and we were talking about the last beer- well if you wanted it you better have quick reflexes. If it was an apple you would have lots of time to grab it. And if you wanted the apple but wanted to be polite, and I did not want the apple and it got thrown out? Then no one benefited from it. Except possibly in your own mind in some kind of self-evaluation. Which I don’t think is worthless all the time either.

      But I would tell you I don’t want the apple. Possibly I might invent a story as to why I don’t want the apple and you should take it. Yeah it is weird.

      • All meant in jest.
        It happens every time though. No-one will touch the last whatever. 🙂

        • Yes. And it doesn’t fit in much with the story of economics as individuals solely concerned with their own self-interest and how that somehow translates into something better for most.

          But seriously- I want that beer and you can have all the apples Henry. Theoretically speaking of course.

    • Perhaps, Henry, you could ask the other diners. Also, economics thinks you have knowledge of everyone’s future preferences, so you should know the answer without asking. But, I would still ask.

      • billcinsd,
        “Perhaps, Henry, you could ask the other diners.”
        Perhaps. But this would not be in keeping with the table etiquette syndrome. It’s not the done thing to reveal your preferences or desires. It would not look good to be wanting the last morsel. It would mean you wanting it above all others and consideration of others. It would be seen as selfish. We are left with the mexican standoff.
        “…economics thinks you have knowledge of everyone’s future preferences…”
        OK. The perfect competition model says I and everyone else would have perfect knowledge. So we would all know each other’s desires. That being the case, how is this resolved? Another mexican standoff?
        The rational expectations model tells that we would all know the outcome (within a distribution, at least). So how does that resolve itself? Another mexican standoff?

        • Henry, I think there are lots of situations where people are expected to act in a certain way and so they conform to the expectations of the moment. Regardless how they would act in a different situation. I mean this might sound terrible, but I have gone to funerals of people I didn’t really know or like but whose family members I very much liked and behaved in the way that hopefully helped those family members in some small way even if by just showing up and being respectful.
          Maybe that is similar to your table manners observation and I would say that what people do in some situations that are generally a very small percentage of their ordinary life does not mean they cannot be a completely different person the vast majority of the time. Not that I think most people are selfish most of the time either. I just don’t know how much to read into your observations of table manners at dinner parties.

        • Jerry,
          ” I just don’t know how much to read into your observations of table manners at dinner parties.”
          Neither do I.
          And this discussion started as somewhat of a joke – it’s gone much further than anticipated. 🙂

          • One further thought about beer and apples.

            Would you be happy to share? I often bring the last bit of something out of the fridge and offer to share it. Then everyone who wants it can have some.

            But perhaps that cannot be built into a consistent economic theory that relies on me knowing the answer before I ask the question.

          • Huw,
            Generally, I am referring to the last morsel of some kind of delectable food. Unless a five loaves and fishes miracle can be performed there’s not really much to be shared.
            “But perhaps that cannot be built into a consistent economic theory that relies on me knowing the answer before I ask the question.”
            Not unless you reside in a neoclassical world.

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