by From Lars Syll The model has more and more become the message in modern mainstream economics. Formal models are said to help achieve ‘clarity’ and ‘consistency.’ Dani Rodrik — just to take one prominent example — even says, in his Economics Rules, that “models make economics a science.” Economics is more than any other social science model-oriented. There are many reasons for this — the history of the discipline, having ideals coming from the natural sciences (especially physics), the search for universality (explaining as much as possible with as little as possible), rigour, precision, etc. Mainstream economists want to explain social phenomena, structures and patterns, based on the assumption that the agents are acting in an optimizing (rational) way to satisfy given, stable and
Topics:
Lars Pålsson Syll considers the following as important: Uncategorized
This could be interesting, too:
Merijn T. Knibbe writes ´Fryslan boppe´. An in-depth inspirational analysis of work rewarded with the 2024 Riksbank prize in economic sciences.
Peter Radford writes AJR, Nobel, and prompt engineering
Lars Pålsson Syll writes Central bank independence — a convenient illusion
Eric Kramer writes What if Trump wins?
from Lars Syll
The model has more and more become the message in modern mainstream economics. Formal models are said to help achieve ‘clarity’ and ‘consistency.’ Dani Rodrik — just to take one prominent example — even says, in his Economics Rules, that “models make economics a science.”
Economics is more than any other social science model-oriented. There are many reasons for this — the history of the discipline, having ideals coming from the natural sciences (especially physics), the search for universality (explaining as much as possible with as little as possible), rigour, precision, etc.
Mainstream economists want to explain social phenomena, structures and patterns, based on the assumption that the agents are acting in an optimizing (rational) way to satisfy given, stable and well-defined goals.
The procedure is analytical. The whole is broken down into its constituent parts so as to be able to explain (reduce) the aggregate (macro) as the result of interaction of its parts (micro).
Modern mainstream economists ground their models on a set of core assumptions — basically describing the agents as ‘rational’ actors — and a set of auxiliary assumptions. Together they make up the base model of all mainstream economic models. Based on these two sets of assumptions, they try to explain and predict both individual (micro) and — most importantly — social phenomena (macro).
When describing the actors as rational in these models, the concept of rationality used is instrumental rationality – choosing consistently the preferred alternative, which is judged to have the best consequences for the actor given his in the model exogenously given wishes/interests/goals. How these preferences/wishes/interests/goals are formed is typically not considered to be within the realm of rationality, and a fortiori not constituting part of economics proper.
The picture given by the set of core assumptions (rational choice) is a rational agent with strong cognitive capacity that knows what alternatives she is facing, evaluates them carefully, calculates the consequences and chooses the one — given her preferences — that she believes has the best consequences according to him.
Weighing the different alternatives against each other, the actor makes a consistent optimizing choice and acts accordingly (given the set of auxiliary assumptions that specify the kind of social interaction between ‘rational actors’ that can take place in the model).
So — mainstream economic models basically consist of a general specification of what (axiomatically) constitutes optimizing rational agents and a more specific description of the kind of situations in which these rational actors act. The list of assumptions can never be complete since there will always unspecified background assumptions and some (often) silent omissions (like closure, transaction costs, etc). The hope, however, is that the ‘thin’ list of assumptions shall be sufficient to explain and predict ‘thick’ phenomena in the real, complex, world.
Economics — in contradistinction to logic and mathematics — ought to be an empirical science, and empirical testing of ‘axioms’ ought to be self-evidently relevant for such a discipline. For although the mainstream economist himself (implicitly) claims that his axioms are universally accepted as true and in no need of proof, that is in no way a justified reason for the rest of us to simpliciter accept the claim.
When applying deductivist thinking to economics, mainstream economists usually set up ‘as if’ models based on the logic of idealization and a set of tight axiomatic assumptions from which consistent and precise inferences are made. The beauty of this procedure is that if the axiomatic premises are true, the conclusions necessarily follow. But — although the procedure is a marvellous tool in mathematics and axiomatic-deductivist systems, it is a poor guide for the real world.
The way axioms and theorems are formulated in mainstream economics standardly leaves their specification without almost any restrictions whatsoever, safely making every imaginable evidence compatible with the all-embracing ‘theory’ — and a theory without informational content never risks being empirically tested and found falsified. Used in mainstream economics ‘thought experimental’ activities, it may, of course, be very ‘handy’, but totally void of any empirical value.
Mainstream economic models are nothing but broken pieces models. That kind of models can’t make economics a science