Tag Archives: Economics

Arrow-Debreu and the Bourbaki illusion of rigour By the time that we have arrived at the peak first climbed by Arrow and Debreu, the central question boils down to something rather simple. We can phrase the question in the context of an exchange economy, but producers can be, and are, incorporated in the model. There is a rather arid economic environment referred to as a purely competitive market in which individuals receive signals as to the prices of all...

Economics — an axiomatically based science doomed to fail A modern economy is a very complicated system. Since we cannot conduct controlled experiments on its smaller parts, or even observe them in isolation, the classical hard-science devices for discriminating between competing hypotheses are closed to us. The main alternative device is the statistical analysis of historical time-series. But then another difficulty arises. The competing hypotheses are...

Economics — science succumbed to universalist temptations All social sciences, to a greater or lesser degree, start with a yearning for a universal language, into which they can fit such particulars as suit their view of things. Their model of knowledge thus aspires to the precision and generality of the natural sciences. Once we understand human behavior in terms of some universal and – crucially – ahistorical principle, we can aspire to control (and of...

Additivity — a dangerous assumption The unpopularity of the principle of organic unities shows very clearly how great is the danger of the assumption of unproved additive formulas. The fallacy, of which ignorance of organic unity is a particular instance, may perhaps be mathematically represented thus: suppose f(x) is the goodness of x and f(y) is the goodness of y. It is then assumed that the goodness of x and y together is f(x) + f(y) when it is clearly...

DSGE models — worse than useless If you want absolute truth then you must look to pure mathematics or religion, but certainly not to science … Science is all about possibilities. We propose theories, conjectures, hypotheses and explanations. We collect evidence and data, and we test the theories against this new evidence … It’s the very essence of science that its conclusions can change, that is, that its truths are not absolute. The intrinsic good sense of...

Guest post by Jeff Mosenkis of Innovations for Poverty Action India’s government is hiring behavioral scientists for a new nudge unit (h/t Neela Saldanha)Cancer researcher Peter Bach points out how Novartis used anchoring to set price expectations high for a new immunotherapy, making a 2 million dollar drug price (much higher than other life-saving treatments) sound reasonable years in advance by consistently referring to the new treatments in development as “million dollar therapies.” In...

For Marx and many Marxists, money is based in a commodity; in Modern Monetary Theory (MMT), it is not, being based instead in a social relationship that holds more generally than just to commodity production and exchange. Even so, to the extent that commodity production and exchange are given sway within ‘modern money’ economies, operation of the Marxian ‘law of value’ appears to be compatible with MMT. It is just that, from an MMT perspective, private for-profit market-based activity will...

Un livre publié en 2010 par Naomi Oreskes et Erik M. Conway, traduit en 2012 sous le titre Les Marchands de doute (éditions Le Pommier), a magistralement démontré, au terme de plusieurs années d’enquête, comment de grandes entreprises, souvent soutenues par des groupes d’intérêt et des organisations farouchement hostiles à l’idée même de régulation, étaient parvenues à mettre massivement en doute les résultats scientifiques les mieux établis … Dans tous les cas, les méthodes...

Why economic models do not give us explanations Economic models frequently invoke … entities that do not exist, such as perfectly rational agents, perfectly inelastic demand functions, and so on. As economists often defensively point out, other sciences too invoke non-existent entities, such as the frictionless planes of high-school physics. But there is a crucial difference: the false-ontology models of physics and other sciences are empirically...

Time to explain ergodicity … The difference between 100 people going to a casino and one person going to a casino 100 times, i.e. between (path dependent) and conventionally understood probability. The mistake has persisted in economics and psychology since age immemorial. Consider the following thought experiment. First case, one hundred persons go to a Casino, to gamble a certain set amount each and have complimentary gin and tonic … Some may lose, some may win, and we can...