Friday, November 24, 2017

The Arthurian — Grab a Barf Bag!

Here's a quote that would make Lars Syll retch:
Because DSGE models start from microeconomic principles of constrained decision-making, rather than relying on historical correlations, they are more difficult to solve and analyze. However, because they are also based on the preferences of economic agents, DSGE models offer a natural benchmark for evaluating the effects of policy change.- MathWorks: Modeling the United States Economy
"... based on the preferences of economic agents, DSGE models offer a natural benchmark for evaluating the effects of policy change.
I think this is one of Syll's pet peeves! DSGE models are not "based on the preferences of" actual economic agents, but on simplified agents arising from "deductivist" assumptions....
The is a good illustration of "mindless math" aka GIGO. Mindless math presumes (hidden assumption) that quantification somehow guarantees outcomes regardless of conceptual logic that underlies the numbers.

For example, variables have arguments based on the conceptual definition of the variable in terms of a set. If the numbers do not match the defined membership of the set, then GIGO. This is all over the place in economic modeling, e.g., where homogeneity is assumed excessively, or where micro is extended to macro when the fallacy of composition applies.

Lars Syll assiduously points out these "freshman errors" in his blog. More economists should be paying attention.

I find it rather surprising that MathWorks would stumble over this.

The New Arthurian Economics
The Arthurian

3 comments:

Matt Franko said...

The key difference is Stochastic vs Deterministic math...

STEM disciplines rely on Deterministic functional equations...

Dynamic Stochastic General Equilibrium should rather be Static Deterministic Specific Surplus...

Matt Franko said...

The lack of a Deterministic approach is just the textbook libertarianism 101 training being employed here by these people we are living in a libertarian utopia..

The libertarian concept of “free will” is creating a bias in the mathematical approach towards Stochastics....

libertarians just can’t do Determinism...

Matt Franko said...

It’s not mindless math here it is libertarian math.... iow how a libertarian would approach this stuff mathematically...