Lars P. Syll

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How do we attach probabilities to the real world? Econometricians usually think that the data generating process (DGP) always can be modelled properly using a probability measure. The argument is standardly based on the assumption that the right sampling procedure ensures there will always be an appropriate probability measure. But – as always – one really has to argue the case, and present warranted evidence that real-world features are correctly described...

Küssen kann man nicht alleine  [embedded content]

Ich hab’ mein Herz in Heidelberg verloren (personal)

On probability distributions and uncertainty Almost a hundred years after John Maynard Keynes wrote his seminal A Treatise on Probability (1921), it is still very difficult to find economics textbooks that seriously try to incorporate his far-reaching and incisive analysis of induction and evidential weight. The standard view in mainstream economics – and the axiomatic probability theory underlying it – is to a large extent based on the rather simplistic...

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Economists of all shades have generally misunderstood the theoretical structure of Keynes’s The General Theory. Quite often this is a result of misunderstanding the concept of ‘effective demand’ — one of the key theoretical innovations of The General Theory. Jesper Jespersen untangles the concept and shows how Keynes, by taking uncertainty seriously, contributed to forming an analytical alternative to the prevailing neoclassical general equilibrium framework: Effective demand...

The invisible hand — invisible because it’s not there Daniel Kahneman … has demonstrated how individuals systematically behave in ways less rational than orthodox economists believe they do. His research shows not only that individuals sometimes act differently than standard economic theories predict, but that they do so regularly, systematically, and in ways that can be understood and interpreted through alternative hypotheses, competing with those...

On the limits of the invisible hand [embedded content] It might look trivial at first sight, but what Harold Hotelling did show in his classic paper Stability in Competition (1929) was that there are cases when Adam Smith’s invisible hand doesn’t actually produce a social optimum. With the advent of neoclassical economics at the end of the 19th century a large amount of intellectual energy was invested in trying to formalize the stringent conditions of...

David K. Levine — unlucky when trying to think In the wake of the latest financial crisis many people have come to wonder why economists never have been able to predict these manias, panics and crashes that haunt our economies. In responding to these warranted wonderings, some economists – like professor David K. Levine in the article Why Economists Are Right: Rational Expectations and the Uncertainty Principle in Economics in the Huffington Post – have...