Sunday, July 28, 2013

Peter Radford — Simple model mania

...The point being that the obsession to reduce everything to simple ideas that can be put into simple models, condemns economics to misunderstand, and therefore not explain, reality. People are far too nuanced and unpredictable to be shoved completely into either PIH or RIH. They bounce about. The truth is that there are likely plenty more explanations as well. Perhaps there are twenty hypotheses each explaining a little bit. But, since that makes modeling complicated, economists stay well away from reality.
BTW, this is an underlying message of Ludwig Wittgenstein's investigation of the logic of ordinary language in his later work. Thinkers typically go awry in over-generalizing. This is the informal fallacy of hasty generalization, and it includes composition fallacies as well.

Economics is particularly susceptible of fallacies of composition in the chief methodological assumption of liberal economics is a representative individual acting in the vacuum of rational free choice, "rational" being defined as pursuit of maximum utility in making choices, presumed to be fully informed, and "free" meaning independent of external influences such as culture, institutions, affiliations, and personal relationships. The problem with this is that homo economicus is not homo sapiens sapientis, but rather an methodological and ideological construct that is non-representational in spite being asserted to be representative. Examining the logic of conventional economics, it cannot be correct.

Real-World Economics Review Blog
Peter Radford

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