Rom i regnet (personal)

29 Nov, 2021 at 17:22 | Posted in Varia | Leave a comment

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Till Anna — som fick mig att överleva tre ändlöst långa gymnasieår.

Och till Ulf — som skriver den sorts musik som glömskan inte rår på.

Rational expectations — the triumph of ideology over science

29 Nov, 2021 at 11:46 | Posted in Economics | 7 Comments

Senate Banking Subcommittee On Financial Institutions Hearing With Stiglitz For more than 20 years, economists were enthralled by so-called “rational expectations” models which assumed that all participants have the same (if not perfect) information and act perfectly rationally, that markets are perfectly efficient, that unemployment never exists (except when caused by greedy unions or government minimum wages), and where there is never any credit rationing.

That such models prevailed, especially in America’s graduate schools, despite evidence to the contrary, bears testimony to a triumph of ideology over science. Unfortunately, students of these graduate programmes now act as policymakers in many countries, and are trying to implement programmes based on the ideas that have come to be called market fundamentalism … Good science recognises its limitations, but the prophets of rational expectations have usually shown no such modesty.

Joseph Stiglitz

Those who want to build macroeconomics on microfoundations usually maintain that the only robust policies and institutions are those based on rational expectations and representative actors. As yours truly has tried to show in On the use and misuse of theories and models in economics there is really no support for this conviction at all. On the contrary. If we want to have anything of interest to say on real economies, financial crisis and the decisions and choices real people make, it is high time to place macroeconomic models building on representative actors and rational expectations microfoundations in the dustbin of pseudo-science.

For if this microfounded macroeconomics has nothing to say about the real world and the economic problems out there, why should we care about it? The final court of appeal for macroeconomic models is the real world, and as long as no convincing justification is put forward for how the inferential bridging de facto is made, macroeconomic modelbuilding is little more than hand-waving that give us a rather little warrant for making inductive inferences from models to real world target systems. If substantive questions about the real world are being posed, it is the formalistic-mathematical representations utilized to analyze them that have to match reality, not the other way around.

The real macroeconomic challenge is to accept uncertainty and still try to explain why economic transactions take place — instead of simply conjuring the problem away by assuming rational expectations and treating uncertainty as if it was possible to reduce it to stochastic risk. That is scientific cheating. And it has been going on for too long now.

The road to hell

29 Nov, 2021 at 11:41 | Posted in Varia | 1 Comment

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First memory

27 Nov, 2021 at 12:02 | Posted in Varia | Leave a comment

Ararat by Louise GlückLong ago, I was wounded. I lived
to revenge myself
against my father, not
for what he was—
for what I was: from the beginning of time,
in childhood, I thought
that pain meant
I was not loved.
It meant I loved.

Critiques du système quantitatif

26 Nov, 2021 at 17:50 | Posted in Education & School | Leave a comment

Publish or perish? Is it that simple? – Walking in my science shoes 2012, à San Francisco, une Déclaration sur l’évaluation de la recherche (DORA) était proclamée, signée par des centaines d’acteurs de la recherche dans le monde, insistant sur le fait que « le contenu scientifique d’un article est beaucoup plus important que les indicateurs de publication ou l’image de marque de la revue dans laquelle il a été publié ». Le texte précisait « la nécessité de mettre un terme à l’utilisation d’indicateurs fondés sur les revues, comme les facteurs d’impact, dans le financement, les nominations et les promotions. »

La mise en œuvre a été longue et ne se fait pas sans tension ou contradiction, comme l’a illustré une journée internationale d’échanges organisée le 15 novembre par le CNRS, signataire de la DORA en 2018, sur le thème de « la science ouverte et l’évaluation individuelle ». Ainsi, la section économie de l’organisme a-t-elle abandonné, fin 2020, la publication d’un classement des revues, utilisé dans l’évaluation de dossiers de candidature … Plusieurs intervenants notent que de nouvelles métriques apparaissent (présence sur les réseaux sociaux, nombre de téléchargements, etc.), prêtes à remplacer les anciennes, et qu’il y a donc des risques de tomber dans de nouveaux travers.

Pourtant, pour Alain Schuhl, le numéro deux du CNRS, le pli est pris : « Il faut rendre l’évaluation indépendante des comités éditoriaux des revues. Un comité de vingt experts est plus juste qu’un tableur ! »

David Larousserie/Le Monde

The Sonnenschein-Mantel-Debreu Theorem

25 Nov, 2021 at 09:50 | Posted in Economics | Leave a comment

SMD theory means that assumptions guaranteeing good behavior at the microeconomic level do not carry over to the aggregate level or to qualitative features of the equilibrium. It has been difficult to make progress on the elaborations of general equilibrium theory that were put forth in Arrow and Hahn 1971 …

24958274Fifteen years after General Competitive Analysis, Arrow (1986) stated that the hypothesis of rationality had few implications at the aggregate level. Kirman (1989) held that general equilibrium theory could not generate falsifiable propositions, given that almost any set of data seemed consistent with the theory. These views are widely shared. Bliss (1993, 227) wrote that the “near emptiness of general equilibrium theory is a theorem of the theory.” Mas-Colell, Michael Whinston, and Jerry Green (1995) titled a section of their graduate microeconomics textbook “Anything Goes: The Sonnenschein-Mantel-Debreu Theorem.”

S. Abu Turab Rizvi

And so what? Why should we care about Sonnenschein-Mantel-Debreu?

Because  Sonnenschein-Mantel-Debreu ultimately explains why New Classical, Real Business Cycles, Dynamic Stochastic General Equilibrium (DSGE) and New ‘Keynesian’ microfounded macromodels are such bad substitutes for real macroeconomic analysis!

These models try to describe and analyze complex and heterogeneous real economies with a single rational-expectations-robot-imitation-representative-agent. That is, with something that has absolutely nothing to do with reality. And — worse still — something that is not even amenable to the kind of general equilibrium analysis that they are thought to give a foundation for, since Hugo Sonnenschein (1972),​ Rolf Mantel (1976) and Gerard Debreu (1974) unequivocally showed that there did not exist any condition by which assumptions on individuals would guarantee neither stability nor uniqueness of the equilibrium​ solution. A century and a half after Léon Walras founded neoclassical general equilibrium theory, modern mainstream economics hasn’t been able to show that markets move economies to equilibria. This if anything shows that the whole Bourbaki-Debreu project of axiomatizing​ economics was nothing but a delusion.

You enquire whether or not Walras was supposing that exchanges actually take place at the prices originally proposed when the prices are not equilibrium prices. The footnote which you quote convinces me that he assuredly supposed that they did not take place except at the equilibrium prices … All the same, I shall hope to convince you some day that Walras’ theory and all the others along those lines are little better than nonsense!

Letter from J. M. Keynes to N. Georgescu-Roegen, December 9, 1934

Opting for cloned representative agents that are all identical is of course not a real solution to the fallacy of composition that the Sonnenschein-Mantel-Debreu theorem points to. Representative agent models are — as I have argued at length in my On the use and misuse of theories and models in mainstream economics — rather an evasion whereby issues of distribution, coordination, heterogeneity are swept under the rug.

Of course, most macroeconomists know that to use a representative agent is a flagrantly illegitimate method of ignoring real aggregation issues. They keep on with their business, nevertheless, just because it significantly simplifies what they are doing. It reminds not so little of the drunkard who has lost his keys in some dark place and deliberately chooses to look for them under a neighbouring street light just because it is easier to see there …

Regression och heterogenitet

24 Nov, 2021 at 13:05 | Posted in Statistics & Econometrics | 1 Comment

En grupp ‘högpresterande’ elever — Ada, Beda, och Cissi — söker in till en friskola. Ada och Beda blir antagna och börjar på den. Cissi blir också antagen, men väljer att gå på en kommunal skola. En annan grupp ‘lågpresterande’ elever — bestående av Dora och Eva — söker och blir både antagna till en friskola, men Eva väljer att gå på en kommunal skola.

drunkOm vi nu tittar på hur de presterar på ett kunskapsprov får vi följande resulatat: Ada — 22, Beda — 20, Cissi — 22, Dora — 12, Eva — 6. I den första gruppen får vi en provresultatskillnad mellan de elever som går på friskola och eleven som går i kommunal skola på -1 ((22+20)/2 – 22). I den andra gruppen blir provresultatskillnaden mellan eleven som väljer att gå på friskola och eleven som väljer gå i kommunal skola 6 (12-6). Den genomsnittliga provresultatskillnaden för grupperna tagna tillsammans är 2.5 ((-1+6)/2). Om man kör en vanlig OLS regression på datan — Skattade Provresultat = α + ß*Skolform + ζ*Grupptillhörighet — så får vi α = 8, ß = 2 och ζ = 12.

Kruxet med regressionsparameterskattningen är att det viktade genomsnittsvärdet — 2 — egentligen inte säger speciellt mycket om de gruppspecifika effekterna, där vi i den ena gruppen har en negativ ‘effekt’ av att gå i friskola och i den andra en positiv ‘effekt.’ Återigen har vi ett exempel där verklighetens heterogenitet riskerar ‘maskeras’ när man använder traditionell regressionsanalys för att skatta ‘kausala’ effekter.

Tribute to Björn Skifs

23 Nov, 2021 at 19:18 | Posted in Varia | Leave a comment

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Hineni, hineni

23 Nov, 2021 at 19:02 | Posted in Varia | Leave a comment

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Economy Studies: A Guide to Rethinking Economics Education

23 Nov, 2021 at 18:04 | Posted in Economics | Leave a comment

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Anti-vaxxers and statistics

22 Nov, 2021 at 17:26 | Posted in Statistics & Econometrics | 17 Comments

Picture 1

If we make a Pearson’s correlation analysis on the variables in the scatterplot above — the corona vaccination rate and the (7 day) case rate per 100 000 people (data from last week) — we get an r = -0,15. And still in the youtube video below Sahra Wagenknecht says there is “keine Zusammenhang” between vaccination rate and case rate for the countries in the plot. Maybe someone ought to teach high-profile anti-vaxxers some basic statistics …

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The fatal flaw of mathematics

21 Nov, 2021 at 18:16 | Posted in Theory of Science & Methodology | 7 Comments

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Gödel’s incompleteness theorems raise important questions about the foundations of mathematics.

The most important concerns the question of how to select the specific systems of axioms that mathematics are supposed to be founded on. Gödel’s theorems irrevocably show that no matter what system is chosen, there will always have to be other axioms to prove previously unproved truths.

This, of course, ought to be of paramount interest for those mainstream economists who still adhere to the dream of constructing a deductive-axiomatic economics with analytic truths that do not require empirical verification. Since Gödel showed that any complex axiomatic system is undecidable and incomplete, any such deductive-axiomatic economics will always consist of some undecidable statements. When not even being able to fulfil the dream of a complete and consistent axiomatic foundation for mathematics, it’s totally incomprehensible that some people still think that could be achieved for economics.

Separating questions of logic and empirical validity may — of course — help economists to focus on producing rigorous and elegant mathematical theorems that people like Lucas and Sargent consider “progress in economic thinking.” To most other people, not being concerned with empirical evidence and model validation is a sign of social science becoming totally useless and irrelevant. Economic theories building on known to be ridiculously artificial assumptions without an explicit relationship with the real world is a dead end. That’s probably also the reason why general equilibrium analysis today (at least outside Chicago) is considered a total waste of time. In the trade-off between relevance and rigour, priority should always be on the former when it comes to social science. The only thing followers of the Bourbaki tradition within economics — like Karl Menger, John von Neumann, Gerard Debreu, Robert Lucas, and Thomas Sargent — has given us are irrelevant model abstractions with no bridges to real-world economies. It’s difficult to find a more poignant example of an intellectual resource waste in science.

Silence that speaks

21 Nov, 2021 at 14:33 | Posted in Politics & Society | Leave a comment

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A twenty minutes watch heart breaking and with an important message.

David Freedman — the conscience of statistics

21 Nov, 2021 at 14:19 | Posted in Statistics & Econometrics | 1 Comment

On the issue of the various shortcomings of statistics, regression analysis, and econometrics, no one sums it up better than David Freedman in his Statistical Models and Causal Inference:

David A. Freedman - WikipediaIn my view, regression models are not a particularly good way of doing empirical work in the social sciences today, because the technique depends on knowledge that we do not have. Investigators who use the technique are not paying adequate attention to the connection — if any — between the models and the phenomena they are studying. Their conclusions may be valid for the computer code they have created, but the claims are hard to transfer from that microcosm to the larger world …

Regression models often seem to be used to compensate for problems in measurement, data collection, and study design. By the time the models are deployed, the scientific position is nearly hopeless. Reliance on models in such cases is Panglossian …

Given the limits to present knowledge, I doubt that models can be rescued by technical fixes. Arguments about the theoretical merit of regression or the asymptotic behavior of specification tests for picking one version of a model over another seem like the arguments about how to build desalination plants with cold fusion and the energy source. The concept may be admirable, the technical details may be fascinating, but thirsty people should look elsewhere …

Causal inference from observational data presents may difficulties, especially when underlying mechanisms are poorly understood. There is a natural desire to substitute intellectual capital for labor, and an equally natural preference for system and rigor over methods that seem more haphazard. These are possible explanations for the current popularity of statistical models.

Indeed, far-reaching claims have been made for the superiority of a quantitative template that depends on modeling — by those who manage to ignore the far-reaching assumptions behind the models. However, the assumptions often turn out to be unsupported by the data. If so, the rigor of advanced quantitative methods is a matter of appearance rather than substance.

Living on my own

20 Nov, 2021 at 16:19 | Posted in Varia | Leave a comment

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