by Do economic models — really — explain anything at all? In my view, scientific theories are not to be considered ‘true’ or ‘false.’ In constructing such a theory, we are not trying to get at the truth, or even to approximate to it: rather, we are trying to organize our thoughts and observations in a useful manner. Robert Aumann What ‘Nobel prize-winning’ economist Robert Aumann and other mainstream economics defenders of scientific storytelling ‘forget’ is that potential explanatory power achieved in thought experimental models is not enough for attaining real explanations. Model explanations are at best conjectures, and whether they do or do not explain things in the real world is something we have to test. To just believe that you understand or
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Do economic models — really — explain anything at all?
In my view, scientific theories are not to be considered ‘true’ or ‘false.’ In constructing such a theory, we are not trying to get at the truth, or even to approximate to it: rather, we are trying to organize our thoughts and observations in a useful manner.
What ‘Nobel prize-winning’ economist Robert Aumann and other mainstream economics defenders of scientific storytelling ‘forget’ is that potential explanatory power achieved in thought experimental models is not enough for attaining real explanations. Model explanations are at best conjectures, and whether they do or do not explain things in the real world is something we have to test. To just believe that you understand or explain things better with thought experiments is not enough. Without a warranted export certificate to the real world, model explanations are pretty worthless. Proving things in models is not enough. Especially not since we all know that almost all models massively misrepresent their real-world targets in many ways. Analyzing real-world cooperation with game theoretical models built on, e.g., assumptions of ‘common knowledge’ and ‘belief alignment,’ does not explain anything at all since we know these assumptions are blatantly false of the cooperation phenomenon and that the result of the analysis depend heavily on these assumptions.
Mainstream economists often defend their ‘as if’modelling practice with the argument that truth is not an essential element in economics. But that is not a tenable attitude if one at the same time argue that these models have anything to say about causality. To be able to give a causal account of something, the account has to be true. You have to really show that effect e was brought about by cause c. An increase in wages could be a cause of higher consumption, but unless it really is increased it does not explain higher consumption.
My newly planted lemon tree is sick, the leaves yellow and dropping off. I finally explain this by saying that water has accumulated in the base of the planter: the water is the cause of the disease. I drill a hole in the base of the oak barrel where the lemon tree lives, and foul water flows out. That was the cause. Before I had drilled the hole, I could still give the explanation and to give that explanation was to present the supposed cause, the water. There must be such water for the explanation to be correct. An explanation of an effect by a cause has an existential component, not just an optional extra ingredient.
Describing credible ‘as-if’ worlds in thought-experimental models is not equivalent to giving genuine explanations. To think that is actually to ignore the real problem. Even though most mainstream economists think that their models are credible, that in no way constitutes a warrant or reason for considering them explanatory in any substantive way. Why? Simply because — as argued more extensively in my On the use and misuse of theories and models in mainstream economics — genuine explanation requires ‘truth.’
So, if you are seeking genuine explanations of what happens in real-world economies, you can take your books on general equilibrium, growth theory, game theory, rational choice theory, Mankiw textbooks, New-Classical-Keynesian macroeconomics models, and put them all in the dustbin. If you are going for genuine explanations you simply have to look elsewhere.