Models as Fairytales

One of the meta-economics discussions we had in our Micro class this past term was about how we should view economic theory. Is it an attempt, as in science, to discern the rules by which the real world is governed? Is it a tool to predict the future? Is it trial-and-error? To what extent do the assumptions we make have to match reality?

Our prof told us he thinks of economic models as fables. As in a fable, the assumptions can be all wrong (ants can't speak to grasshoppers!). But, as with a good fable, a good model provides you with insight into the world. For a model to have value it must simplify the world, and part of that simplification will by necessity do harm to 'reality'. This view of models (which is basically what economic theory consists of) comes from Rubinstein. His Microeconomic Lecture Notes reflect on this in the introduction. Scroll down to that section and read the first two pages.

I'm still trying to decide where I stand on this issue. In some ways I think of the 'fables' interpretation of models as something of a cop-out. It's easy for a theoretical economist to say that models shouldn't be criticized for having unrealistic assumptions, but what if you want to apply your models to data? What if you want to make recommendations about how society should be run? You have to think more seriously about what the consequences of models of one type or another are. What is the result of assuming homogeneous agents? Does it matter that people don't always behave 'rationally'?

Obviously on some level it does matter. But still we must simplify. So where is simplification harmful? I tend to think of this as an empirical question, but there are some important things we cannot test. Ask me again in a couple years, I will hopefully have a better answer then.

Right on!  Second time is a charm...hopefully.  It was so great seeing all of you again!  It reminded me how much I would enjoy a forum to test and wage ideological battle, if only to satisfy my poo-flinging monkey desires.  In my day dream hand-wavy imagination, I also fantasize that this will be a great way to recommend must-read books to each other, perhaps after moments of particularly intense rivalry we could even refresh our discussion by mentioning good movies or food we have recently enjoyed, but the overarching purpose of our blogging would be to bare and cut our teeth against each other's world views.  For those in the robot camp I should clarify, process this human emotion >:(.  Or at least that is my best laid plan.  I am hoping that both Munir and Margaret will participate when they can because they constitute the heart and soul (or the robotic equivalent) of the economist side, but as they are both busy being programmed right now I expect that I will be able to make unanswered pot shots at them from the less rigorous branches and canopy of the arts.  To keep with the metaphor, I will undoubtedly resort to swinging to various positions in order to get the best of their entrenched and towered economist ideas.  Although, as I have mentioned to Margaret, I am not entirely clear on what that position is, and she has already corrected my attack by making an important distinction between micro and macro economic theory.  Abandoning the field of macro economics, I thought I would like to pillage the casualties and publicly throw down the gauntlet by sending in this great interview between Amy Goodman and Manfred Max-Neef.

http://www.democracynow.org/2010/9/22/chilean_economist_manfred_max_neef_us

These are the bullets I want to fire at you:

>economics is a subsystem - What I like about this is that economics is not an absolute model, it has limits, and therefor should be considered as an alternative to other metaphors or models, but not as the supreme model.  My unfounded monkey accusation from here would be to question whether economists fall into a trap of mistaking complexity for comprehensiveness.
    
     >sidebar:  Marg, I think this casts an interesting light on your biology-economist interests.  What is more comprehensive, to understand economics or biology.  Does Manfred give you pause, are you sure you have found your people?

>"the difference between knowledge and understanding"  and Max-Neef's example of how we can measure the phenomenon of love in many ways but that is not the same as understanding love, which is something that is understood through experience and not objective study.  I like this distinction because I think it can be broadened to show how often objectively established 'truths' or 'facts' are held up as all encompassing decoders of life, relegating what is intuitively understood to a lesser order.

Hopefully this kicks things off.  Have at thee!