Mistaking Beauty for Truth
Yesterday I have written about Paul Krugman’s Article → How Did Economists Get It So Wrong?, which explains the reasons for the current economic crisis. On the → Discovery Blog (Article → Mistaking Beauty for Truth), I have found the following counter-hypothesis, which incentivates me to think about a different explanation:
“So my counter-hypothesis would be that it wasn’t beauty that was the problem, it was complacency. If you have a model that is beautiful and works well enough, you’re tempted to take pride in it rather than pushing it to extremes and looking for problems. I suspect that there is a very beautiful theory of economics out there waiting to be developed, one that understands perfectly well that individuals aren’t rational and markets aren’t perfect. One that has even more impressive-looking equations than the current favored models! Beauty isn’t always a cop-out.”
Trying a Different Interpretation
In my academic career, I have studied several economic models by myself, and thus have at least an idea about the subject matter. I think, that complacency (dt. die Selbstzufriedenheit) is not the right word, but habituation (dt. Gewöhnung), would be a better description.
- Economics, and mathematic models are basically synonyms
The academic formation in economics makes students used to expressing the world with models. These models, and the mathematics used to solve these models, consists of a certain pattern (ok, at the end they migh even possess beauty). If one has solved several models it is becoming habitual to work with them.
Now the same can happen, as it might happen (for example) to commuters, who are so used to their daily trip that they easily oversee changes in the traffic routing – one can oversee the limitations of the model, or missinterpret it, or relax the limitations, until they vanish. A solution to this problem would be to more often change the basic way of working, or that you use alternative paths.
- Second effect I often call “the effect of nicely printed nonsense“. I do not know if you have ever calculated with a slide-rule (dt. Rechenschieber). When working with this tool, you need to have an idea about the dimensions of the figures, you are working with. Further, you sometimes write intermediate results down on a piece of paper.
When calculating with a calculator (or computer) you do not need to understand the dimensions, and further down the road, the result is printed nicely. With these tools at hand it can happen very easily that you simply oversee errors, which you could have detected by looking into the dimensions. To find evidence, just talk to kids in school.
A solution to this problem would be to sometimes forget computers, and models, and to come back to reasoning and a better understanding about the dimensions of a problem.
- A further reason – at least for my understanding – is the herd effect itself.
If the opinion-leaders are using models, impressive calculations, and the other magic, the rest of us wants (or must) to do it as well. Imagine now, what happens, if the opinion-leaders are wrong, or if everybody runs with the crowd without thinking, or if all of us just think about the magic, but forget to focus on the contents….
A counter measure would be to educate the economists to become independent minds, and to foster critical minds in general. These critical minds are often not the big bosses but the common people.
How to Destroy the Beauty Effect?
To summarize. Yes the beauty of the economic models is sometimes a problem. But the real reasons are sitting underneath the surface. Following ideas might help the profession to grow:
- More often change the basic way of working, and use alternative paths.
- Sometimes forget computers, and models, and come back to reasoning and a better understanding about the dimensions of a problem.
- Educate the economists to become independent minds, and foster critical minds in general. These critical minds are often not the big bosses, who earn the big bucks, but the common people, with real problems.
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Tags: Bubbles, Economy, English Content, Geldpolitik, Wirtschafts-Krise | Comments Off
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