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Founded in May 2011; More than 12,000 members worldwide.
Please see About section for more details about the blog.
The Islamic conception of “knowledge” differs radically from the western concept. Thus, necessarily, methods for seeking knowledge — research methodology — must also differ. This lecture explains some of the major differences in Eastern and Western approaches to knowledge.
Published in The Nation, 12th Mar 2018. This is a summary of a lecture at PPMI conducted for training of new inductees at the MoPD&R. An 85m video of the entire talk: Research Methodology Training Lecture: shortlink: bit.do/azs4k
The Search for Knowledge (2265 word summary)
As Muslims, we are asked to “seek knowledge from the cradle to the grave”. As a first step, it is essential to have clarity about our goals: “what is the knowledge we seek?”. Surprisingly, the definition of knowledge is a matter of ongoing debate and controversy. To understand this better, it is useful to consider two categories – knowledge of the external world around us, and knowledge of our internal world. The two categories complement each other, and both are necessary for our personal and collective affairs. It should be obvious that the methods required to pursue these two types of knowledge…
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Romer writes that macro-economists casually dismiss facts, and the profession as a whole has gone backwards over the past few decades, losing precious and hard-won knowledge. He does not consider WHY this happened. What are the methodological flaws that create the possibility of moving backwards, losing knowledge, affirming theories known to be in conflict with facts. How is it that leading economists can confidently assert theories which border on lunacy, and receive Nobel Prizes instead of psychiatric treatment?
This is due to the famous AS-IF methodology of Friedman, which gave economists a license for lunacy. Friedman came up with this defense of orthodoxy when numerous emprical investigation revealed clearly that firms did not maximize profits, did not know their marginal costs, typically used mark-up pricing, and did other things which did not square with neo-classical theories. Friedman’s argument has been universally condemned by logicians and philosophers as an instance of the logical fallacy of “Affirming the consequent” – the use of modus ponens in reverse. That is, Friedman says, in effect, that theory T implies observable consequence C. We observe C, and therefore we can affirm that T holds. This is obviously fallacious since many different theories, inconsistent with T, may also imply consequence C. Even more importantly, a false theory T will always imply consequences C* which are not observed — since the theory is false, it will have consequences which are false. Ignoring all of these problems, Boland uses an instrumentalist interpretation to defend Friedman, just like all economics textbooks. He writes that even though critics universally condemn his logic, Friedman is right, and ALL the critics are wrong.
In my lecture on AM2L07 (code for Advanced Micro II: Lecture 7) Methodological Mistakes: Prospect Theory and Psychology Protocols, I explain why Friedman is wrong and his critics are right by discussing this methodological debate within the concrete context of trying to understand search theory. Consider a hypothetical problem where a person is searching for the highest wage. He goes from one firm to next. At each point he is offered a job at a certain wage W. He can accept and quit searching, or reject the offer and go on searching. We want to find a theory which explains search behavior that we observe in lab experiments designed to emulate this situation.
In simple models, it is easy to show that optimal search sets a reservation wage W* and the laborer searches until he/she finds the first offer above this value. The Economist is committed to the assumption that humans are hyper-rational, and they maximize. ONLY theories satisfying these assumptions will be examined for validity. This means that there is NO QUESTION of looking at human behavior itself to see whether or not this hypothesis about behavior holds. Rather, the ONLY problem is to find the FUNCTION which is being maximized. Economists start by using Expected Utility theory. A rather large number of empirical examples show that this theory does not match human behavior. Nonetheless, this continues to be the dominant theory of decision making under uncertainty and continues to be taught in textbooks, even though the theory is KNOWN to be wrong.
An improvement upon this is PROSPECT theory. By making ad-hoc modifications to probabilities, utilities, and FRAMING the problem in a suitable way, this theory can achieve a MUCH BETTER match to observed behavior than Utility theory. This theory preserves MAXIMIZATION – humans maximize something. However it abandons rationality — why should humans treat probabilities INCORRECTLY. Economists cannot stomach this observed failure of rationality and so AFFIRM theories solidly in conflict with observed facts about human behavior.
NEITHER of these approaches is scientific, since both dogmatically assert allegiance to the maximization principle regardless of observation. The articles by John Hey show how one can move beyond this to a genuinely scientific methodology. He explains how many researchers have investigated search behavior, but have only been concerned with whether or not it matched ASSUMED theories of behavior. INSTEAD he proposes to investigate how humans ACTUALLY behave, without imposing any assumptions about behavior in advance. He used psychological protocols, asking subject to think out loud about the process with which they arrive at the decision on whether to accept an offer or to go on to search for the next one. As can be expected, humans cannot make complex calculations that theory requires of them, and instead they use various heuristics and rules of thumb. These heuristic work fairly well, and get them reasonable close to what someone with full information and infinite computational capabilities could achieve. Nonetheless, the use of heuristics gives radically different results about what we could expect to see in markets where these behaviors, rather than the hypothesized AS-IF behavior is used. The full lecture is linked below
For lecture slides and reference materials, links to related articles, as well as the whole sequence of lectures, see the course website: Advanced Micro II (shortlink: bit.do/ee2018)
POSTSCRIPT: The process of lecturing, trying to explain to my students how their fellow students are being duped by economic textbook, always give me greater clarity. In this lecture, I examine three approaches to understanding human behavior in the process of searching for the best wage (or searching for the best price).
1: AXIOMATIC — represented by Expected Utility. Here we know in advance what human behavior is. We do not need to look at human behavior at all. If someone ELSE studies this behavior and finds that our theories do not match actual behavior, we say that the experiment must be wrong.
2: DESCRIPTIVE — represented by Prospect Theory. Unlike economists, experimentalists and behaviorists study actual behavior. When it fails to match Expected Utility, they came up with a new theory — prospect theory — which summarizes and encapsulates a description of how humans behave in decisions under uncertainty. Economists REJECT this picture because it shows how human behavior is IRRATIONAL – and this conflicts with their FUNDAMENTAL assumptions of rationality, which must be maintained regardless of any inconvenient facts or observations or introspection.
3: SCIENTIFIC: An accurate description permits us to proceed to the next stage, which is to try to understand the REASONS for this behavior. For example, we observe that most people are risk-averse. They prefer the certain outcome of $50 to a gamble with offers $0 and $100 with equal probabilty. Now we can ask why — this is with regards to unobservable, hidden motivations, about which we can never be certain. A good explanation for this is REGRET. Because of our psychological makeup, the flatness of the utility function in gains, a win of 100 does not feel vastly superior to a win of 50. But the real kicker is the feat that if I take a gamble and lose, I will feel so stupid. Avoiding the regret that might occur when I say I should have taken that certain $50 might be the explanation for risk aversion.
Actually, even “reverse Modus Ponens” is not a good description of Friedman’s methodology — there is an added F-Twist: If we can FIND some observations C such that theory T implies them, then we affirm theory T, and IGNORE any other implications of T which actually conflict with observations.
The METHODOLOGICAL point is the Friedman, like all nominalists and instrumentalists, GIVES up on the possibility of understanding human behavior. All he wants is a model which provides a SUPERFICIAL match to some observations. However, many many real life situations show that this is NOT ENOUGH — we need to have a deeper understanding, in order to be able to explain economic and social phenomena. See also previous related post on Economists Confuse Greek Methodology with Science
Elinor Ostrom was born in the year of 1933 in California, United States. Almost tem years after getting her doctorate in Political Science (University of California), she became professor at the Indiana University Department of Political Science in 1974. Over her long academic career, her activities included extensive field experiences in underdeveloped countries and active participation in many professional associations, such as the American Political Science Association. She was awarded 12 honorary doctorates from universities around the world and three years before her death Elinor Ostrom and Oliver E. Williamson won the 2009 Nobel Prize in Economic Sciences. She was the only woman ever to win the Nobel Prize in Economics.
Her approach to social and ecological systems highlights the complexity of natural and human systems. In her famous book, Governing the Commons: The Evolution of Institutions for Collective Action (1990), Elinor Ostrom focused on the capacity of people around the globe to create long-run resilient arrangements for protecting environmental resources. In particular, she studied how groups of people manage and preserve common-pool resources such as forests and water supplies. However, collective actions have not inevitably emerged in all groups of people. Ostrom defined common or common-pool resources as public goods with finite benefits. Therefore, common-pool resources can be potentially used beyond the limits of sustainability because of the lack of exclusion of users. This creates an incentive for increasing the rate of use of this resource above its physical or biological renewal. Besides, her research pointed out that common property is a kind of institutional arrangement that regulates ownership and responsibility.
Considering this framework, Ostrom developed a theoretical approach to the management of common-pool resources at local and global levels where polycentric systems of governance refer to build collective-actions. In this respect, she considered there is not one ideal governance regime, but a variety of regimes of governance that might include: rules of appropriation of resources, rules of maintenance of resources, rules of monitoring and enforcement of the appropriation and obligation activities, rules for of conflict resolution, besides the evaluation of the performance of the resource system and the strategies of participants to change previous rules. Indeed, the users of common-pool resource can work together to enhance the sustainable governance of their commons by collective action. Indeed, under her view, successful commons’ self-governance institutional arrangements depend on: the coherence between the resource environment and its self-government structure, the enforcement of rules through effective monitoring and sanctions, and the adoption of low-cost conflict resolution mechanisms.
According to Ostrom, adaptive governance is related to changing rules and enforcement mechanisms over time since institutional arrangements are able to cope with human and natural complex systems. As a result, citizens, governments, businessmen, and resource users might deal with collective-action problems in diferente ways at diverse scales. When considering the relations between urban public policies and the commons, her latest works highlighted the challenges to collective-action in metropolitan areas where citizens can less effectively articulate preferences, define problems and choice packages of urban public goods and services. Under her understading, the competition for contracts in urban goods and services might foster technological innovations and social co-production to find out new ways to face the social and environmental needs.
Indeed, Elinor Ostrom´s contribution adds to our understanding how collective actions and polycentric arrangements of governance can influence economic outcomes, human behaviours and institutions towards growing resilience and sustainability. In this attempt, she crossed traditional boundaries between political science and economics.
Madi, M. A. ( 2017) Puralist Readings in Economics: key-concepts and policy tools for the 21st century. Bentham Publishers.
That economics is a value-laden science is not a new idea. Most of the prominent economic thinkers were also philosophers, wary of moral and philosophical content of scientific assumptions, models, and theories. That economics needs philosophy, and the separation between these two cannot be maintained any longer, is gaining recognition, and has become a subject of debates in the field of philosophy of economics that brings together (to various extends) philosophers, mainstream, and heterodox economists. For example, Daniel Hausman (1992) discusses that at an analytic level economists do successfully separate the philosophical and ethical content from economic analysis, albeit this separation is possible only at the analytic level. Karl Polanyi (1957), in his discussion on the entanglement of economic activities in the social totality, gives insights from a different perspective how considering the subject of economic study in social vacuum can in fact lead to thinking that scientific practice indeed has disentangled from society.
Today economists of both mainstream (e.g., Jean Tirole) and heterodox approaches more readily admit: economics is a moral and philosophical science. Yet the meaning and scope of the normative components of economics, the epistemic consequences of the social embeddedness of science, and the social consequences of economics are raising so far inconclusive debates. These issues constitute two-tiered dimensions of scientific rationality: external and internal ones. While the criteria of internal rationality (which constitute the standard approach to scientific rationality) refer to disciplinary epistemology and methodology, the criteria of external rationality involve the axiological, ethical, and societal elements of the process of knowledge production and the social consequences of science.
Interestingly, as Gustav Márquez (2016) points out, even in the field of philosophy of economics, the discussions are often focused on the elements of what I call here internal rationality. Márquez argues that the predominant focus on these issues characterize the mainstream philosophy of economics, while the more normatively-laden issues, such as a broader theoretical reorientation towards more responsive and socially engaged approaches (which I considered as aspects related to the external scientific rationality), are not so much a part of the dominant concerns and discourse.
Why would an external rationality matter? What is the meaning of the social consequences of economics as a science? And how the acknowledgment of the value-laden component of scientific practices plays out in research practices of the scientific community, and of an individual researcher? These questions are not easy to answer, as they involve several complex issues, such as what is the meaning of scientific truth, scientific objectivity, how to account for the normative components of science, or what are the grounds for our confidence in scientific methods and analysis—to name a few. While each of these questions opens a Pandora box by itself, my goal is to simply open up some of the ways these profound issues can be approached for a discussion. My guiding thought is that one of the elements that drastically shapes our take on these questions pertains to the context in which science and the process of knowledge production is considered.
My specific focus will be on the role of science in society and for policy making. In my next entries of the WEA Pedagogy Blog, I am going to consider several issues, problems, and controversies raised at the intersection of economics, society, and policy, with an eye towards their educational and pedagogical challenges. My objective is to problematize, hopefully for a broader discussion with the readers, the fact that the specific philosophical commitments (e.g. ontological and epistemological assumptions about the role of science, function of knowledge, scientific truth, etc.) bear impact on how the epistemic consequences of the value-ladedness of economics are framed, and on the acknowledgment and role assigned to the extra-scientific components of research practices.
Hasuman, Daniel M. 1992. The Inexact and Separate Science of Economics. New York: Cambridge University Press.
Márquez, Gustavo. 2016. A Philosophical Framework for Rethinking Theoretical Economics and Philosophy of Economics. London: College Publications.
Polanyi, Karl,  1957. The Great Transformation. Boston: Beacon Press.
In Memoriam David Freedman (March 5, 1938–Oct 17, 2008) — March 5, 2018 would have been his 80th birthday. I reproduce below an edited version of some memorial remarks I wrote, from
We would like to dedicate this issue to the memory of David Freedman, an outstanding
statistician whose legacy is closely related to the goals we would like to pursue in this journal. One element of this legacy is the importance of undergraduate teaching; attempts to do explain the relevance and importance of statistics to undergraduates transformed the thinking and research of David. Increasing fragmentation of knowledge has led to a situation where specialists have no idea of how their patch of expertise relates to other portions of econometrics, how the whole body of econometrics ties into economics, and how this body of knowledge relates to achieving broader human goals such as eliminating oppression, injustice, poverty and misery, and bringing happiness, joy, wonder and enlightenment into our lives. Teaching undergraduates is a useful antidote to this fragmentation. When we ask them to invest time and effort in learning difficult materials, we must justify this claim by showing them why it is useful in the context of real world examples. When we attempt to do this we will discover that, contrary to the impression created by our specialized education, no one has been there before us. That is, everyone in the knowledge field is a specialist and no one has a broad overview ranging from details of the theory to how these theories are applied in the context of serious real world applications which make a difference to the lives of people.
In his path-breaking undergraduate text Statistics, David documented the disastrous
consequences of this disconnect via many real world examples. A little exploration reveals how often bad theory with faulty assumptions using wrong types of data is used to guide policy. As a consequence, people who acquire the all round knowledge required to bridge the gap between theoretical knowledge and real world applications can make a big difference in changing the world for the better. David’s involvement in consulting and litigation testifies to his deep concern with using his knowledge to improve the lives of people. His more recent textbook Statistical Models explores how models work in the context of real world applications. Richard Berk, one of the commentators on David Freedman’s article in this issue, has provided a similar examination of regression models in his text: Regression Analysis: A Constructive Critique.
We would like to close with some advice to readers and contributors. John Hey summed up his experience of ten years of editorship of the Economic Journal as follows: “Many of the submissions do not appear to be written in order to further economic knowledge. … few economists ask themselves what are the crucial economic problems facing society. If they did so, they might well produce more relevant material.” Our brief moments on this earth are too precious to waste on pursuit of meaningless publications to add to our vitas. It will add meaning to our lives, depth to our knowledge, and create innovative and path-breaking research, if we make a serious attempt to serve humanity by solving the numerous real economic problems facing us globally.
Our first issue of IER is dedicated to the memory of David Freedman. “Limits of
Econometrics” may be his last professional article – he had written it at my request for this first issue. Unfortunately, he did not get a chance to revise it in response to the many
comments received. As a first draft, it may fall short of the standards of excellence set by
David in his numerous works – see his Berkeley website http://www.stat.berkeley.edu/~freedman/ for references – but, under the circumstances, it seems best to print it as is, in tribute to his memory. We are also publishing comments on this article by Arnold Zellner and Richard Berk.
In 2003, David Freedman was awarded the prestigious John J. Carty Award for the Advancement of Science by the National Academy of Sciences, “for his profound contributions to the theory and practice of statistics, including rigorous foundations for
Bayesian inference and trenchant analysis of census adjustment.” More details about these contributions are available from the Wikipedia entry
The obituaries cited below provide a broader perspective on his career and personality:
It is impossible to summarize his contributions, but I will focus on two issues which are
relevant both to the attached article, and to our underlying philosophy for this journal.
Close attention to real world applications, generated by demands of undergraduate teaching
and by consulting and litigation, changed the focus of David Freedman’s research from the
theoretical and abstract, to how these theories work in practice. His landmark text Statistics
(co-authored with Robert Pisani and Roger Purves) is based on serious examples from
economics, epidemiology, medicine, and social science. In his applied work, Freedman
emphasized exposing and checking the assumptions that underlie standard methods, as well as
understanding how those methods behave when the assumptions are false. Zellner’s comment
provides an econometricians perspective on the fundamental methodological issues which
govern the use of models in real life situations.
A central concern of Freedman was the disconnect between the requirements of real world
data analysis and the conditions under which models can produce reasonable answers. The
widespread use of models which make entirely inappropriate assumptions, together with
obliviousness to consequences of these errors was anathema to Freedman. His book on
Statistical Models discusses many professional highly cited articles which draw conclusions
not justified by the data, due to erroneous background assumptions. Because of these
critiques, many commentators remarked that if we take Freedman seriously, we will all be out of work. Richard Berk’s comment on Freedman’s article addresses this issue: how to proceed
if we take Freedman seriously.
It seems appropriate to close with the following quote from his colleague, Phillip Stark: “He
was just an extraordinary person and an extraordinary scientist. He was a truly exceptional
scholar-brilliant, meticulous and committed to truth.” His loss will be deeply felt in the
community of statisticians and econometricians.
The WEA Online Conferences, designed by Edward Fullbrook and Grazia Ietto-Gillies, makes full use of the digital technologies in the pursuit of the commitments included in the World Economics Association Manifesto: plurality, reality and relevance, diversity, openness and ethical conduct.
The current WEA Conference Monetary Policy after the Global Crisis marks the tenth anniversary of the greatest recession after 1929-33. The aims of this conference include discussing key theoretical insights in order:
Therefore, our main goal is to establish a global forum for confronting of the opposite views about
In sum, the conference aims to survey and discuss the recent theoretical advances in monetary tools, goals and policies, along with the latest empirical research findings. Indeed, this Conference will be one of the first which, in an extensive manner, tackles the problem of monetary aggregation after the Great crisis.
The WEA Online Conferences seek to also engage readers and commentators all around the world considering: (a) the variety of theoretical perspectives; (b) the range of human activities and issues which fall within the broad domain of economics; and (c) the study of the world’s diverse economies; (d) the increasing relevance of the adoption and use of online discussion forums.
Students, academics and professionals who are interested in policy challenges can read the Key-note papers of Daniel L. Thornton, Rakesh Bissoondeeal and Jane Binner in addition to other interesting contributions organized in the following Conference Sessions:
To visit the Discussion Forum works, click http://monetarypolicy2018.weaconferences.net/papers/.
Please first register to this OPEN ACCESS Conference in order to get your e-certificate!
The Discussion Forum closes on March 15th. During the following weeks, we cordially invite you to visit the conference’s website, where you can read and download the conference papers, leave comments, and engage in discussion.
Preliminary Remarks: “The trouble is not so much that macroeconomists say things that are inconsistent with the facts. The real trouble is that other economists do not care that the macroeconomists do not care about the facts. An indifferent tolerance of obvious error is even more corrosive to science than committed advocacy of error.” From The Trouble with Macroeconomics (Paul Romer)
I do not understand why indifference to error is worse than committed advocacy. Tor an illustration of committed advocacy of error, see postscript below on 70 years of economists’ committment to a fallacious theory. Furthermore, the problem is not confined to macro. Microeconomists are also dogmatically committed to utility maximization, when in fact this hypothesis about consumer behavior is solidly rejected by empirical evidence; see: The Empirical Evidence Against Neoclassical Utility Maximization: A Survey of the Literature
Understanding Macro: The Great Depression
Published in The Express Tribune, February 21st, 2018.
Due to frequent headlines, there is a substantial public awareness of core macroeconomic issues like unemployment, trade agreements, exchange rates, deficit, taxes, interest rates, etc. However, even professionals are often ignorant of the intellectual battles which have shaped modern macroeconomics, since this is not taught in typical PhD programmes in economics. This article attempts to provide the history of ideas which led to the emergence of macroeconomics, since this is an essential background required for informed analysis of these issues.
Lord John Maynard Keynes invented the entire field of macroeconomics in response to the Great Depression in 1929, which could not be understood according to economic theories dominant until then. According to the classical economic theory, forces of supply and demand in the labour market would ensure full employment. Keynes starts his magnum opus, The General Theory of Employment, Interest, and Money, with the observation that the economic theory cannot explain the long, persistent and deep unemployment that was observed following the Great Depression. Keynes set himself the goal of creating a theory which could explain wide fluctuations in levels of employment that he observed. He discovered that creating such a theory involved rejecting deeply held convictions, central to economic theory.