A monthly Hayek seminar at the London School of Economics on risk and uncertainty sets a reliably high standard for intellectual stimulation, with quite the diverse constellation of luminaries (and just a few stragglers like me).<\/p>\n
Most regard themselves as social scientists; I don\u2019t see myself as a scientist, in the modern sense: \u00a0\u00a0I like to study social phenomena from a pragmatic perspective (in the William James sense, of what\u2019s useful rather than what\u2019s \u201ctrue.\u201d)<\/p>\n
This week\u2019s session further clarified what these two perspectives mean for thinking about economic models.<\/p>\n
The \u2018classical\u2019 economic scientist\u2019s approach, going back to J.S. Mill, was to start with axioms, and deduce what \u201ctendencies\u201d followed. Mill for instance defined economics as the deductive science of inferring tendencies that result from seeking wealth. He emphatically did not assume that wealth seeking was the only \u2013 or even dominant or uniformly distributed — motivation. Therefore, the tendencies deduced might not actually be observed in specific instances or even in the aggregate.<\/p>\n
We have of course come a long way since then, both in the sophistication of deductions and efforts for empirical validation. This has prompted new deductive models — and backward induction from observation. This effort would include behavioral and evolutionary economists (of various stripes), the Santa Fe complexity folk, and George Soros\u2019s \u2018reflexivity.\u2019<\/p>\n
For all that, I think it’s fair to say that the gap between models and observations remains vast and most everything – as far as I can tell — is over determined (with many plausible explanations for the same thing).<\/p>\n
The most that \u2018scientific consensus\u2019 can realistically expect is some kind of \u2018abductive\u2019 generalization: the \u201cbest\u201d explanation for the widest possible phenomena. And I\u2019m skeptical that without some kind of intellectual bullying such a consensus is possible.<\/p>\n