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Friday, March 18, 2011
Very interesting post, and I would like to read more of your thoughts on the subject, but …
…what it really comes down to is this: “The theory basically stays the same no matter what the data say.”
That’s the first, second and third reason why I view economics as unscientific.
PS: And is there even any theoretical results when we move beyond the individual (without outlandish assumptions)? I think this part is silly. I.e. why not simply state separate assumptions for the aggregate, when you clearly can´t reach a decent theory by summing up the part.
However, I wouldn’t call this silliness unscientific if empirics really mattered (but it sure is ideological).
What you say about the use of falsified models in physics education is true, but it's only part of the story.
The other part is: physics students don't stop studying such models after they've learned the more complete version. Every physics undergrad learns quantum mechanics, but, at least at the school where I went, every physics grad student takes a class in classical electrodynamics. Clearly the classical approximation isn't being used just as a teaching technique; by the first year of grad school the students have already seen Maxwell's Equations and the students have also learned about quantum mechanics. So what's the point of a graduate level class that teaches a classical model, if the students have already been taught that the model has been falsified?
And the answer is that "falsified" is a slightly misleading word. The classical model of electromagnetism is known to be inapplicable in some domains, and it is also known to be an excellent approximation in other domains. We can specify quantitatively the conditions under which the classical model is applicable, and we can explain quantitatively how the more complete theory of quantum electrodynamics reduces to classical electrodynamics in those conditions. Learning approximations is a crucial part of learning physics.
I don't know if there's any very close equivalent in economics.
It is certainly true that physicists use falsified models all the time. You are right, they aren't just teaching techniques. They are also useful approximations.
However, the claim that they are close approximations under the stated conditions is based on massive evidence. They are used because they are useful. They fit a huge amount of data.
This is completely unlike the case of economics. No economic model fits data the way classical physics does. The standard economists claim is that the theory is yes a model not a hypothesis (that is known to be false) but it *might* still be useful. That's where we are at the "might" makes right stage.
I believe that economists are absolutely not in a position such that models which we consider really economic theory (which means they include rational maximizing agents) are actually useful. Rather great effort goes into tweaking those models so that they have the same implications as models which aren't economic theory (because no optimization inside).
Here in comments I'm going to make a strong claim. I don't think that any predictive power has ever been gained by introducing optimizing agents. The reason I think that is that it seems to me that the models with optimizing agents are all always modified until they act like older models without optimizing agents. Then they give the same predictions whihc are OK but nothing special. And zero value has been added.
Before the tweaking they give different predictions which are further from the truth and value has been subtracted.
I challenge economists to present a counterexample (I'll try to think of one myself). I used to think the Permanent income hypothesis was one, not true but giving useful insights and explaining previously puzzling patters. Then I realized that a model without optimization explains those patters.
If I understand you correctly, you seem to be complaining that the core theory hasn't changed to reflect empirical results, and that theory in Varian isn't being tested and rejected. But Varian and texts like it present us with the building blocks of economics. But the building blocks are used to construct more nuanced and complex theory which is tested. The fact that the basic building blocks of economics have proven extremely useful and durable over time does not strike me as unscientific.
Anyway, I appreciate your comments, and the question "does the core of micro still present us with the best tools for the final applied work of economic science?" is certainly a question worth asking, and I'm sure on the edges there's always room for improvement. At the very least I'd be surprised if many graduate programs still using just Varian for their micro core, so I think it's fair to say the toolkit has expanded greatly since then. There's certainly a ton more in MGW then there is in Varian.
Dear AdamPost a Comment
Uh oh this is long again. My question about revisions of Varian aimed to argue that the core of economics is not scientific even though a science is done around the edges. I try to explain in a new post.
You assert that the framework is durable and useful. It is certainly durable. I think that when economists try to use it, they relax the assumptions until they have no implications. The framework is useful if one wishes to present one's work in a way which referees who are economists will accept. I don't think it is useful in the sense that someone armed with the tools outpredicts someone not so armed.
OK less important stuff I edited down to here.
One can be considered an economist without taking any micro course (for a grade) after the one that used Varian. I am. I agree that Varian or Whinston Mas Colell is part of the economic canon and one must be familiar with that stuff to be considered an economist. However, I assert that that stuff was developed without reference to data and was not originally scientific.
Since then, much empirical research has been conducted. Generally it has not confirmed the implications of the models in Varian. But there are still part of the canon. Therefore I conclude that economics is not a science.
I have tried to explain my view more or less concisely as another post. To restate here, I agree that economics is a field with a core set of knowledge required of all who claim to be economists. I agree that some economic research is scientific. I claim that the intersection of the core knowledge and the science is empty.
The core knowledge is a set of definitions and theorems -- mathematical knowledge about formal systems. It is not scientific hypotheses which haven't been rejected and have made surprising and accurate predictions.