When we think about epistemology (theory of knowledge), then we are doing meta-thinking. That is, we are thinking about thoughts people have, which they think is “knowledge”. Because there are many many wrong ideas, and very few right ideas, we must learn to think critically. Unless we do so, our thoughts will be captured by the enormous amounts of fake news which circulates on social media these days. Thinking about thinking, or Meta-Thought, is very different from the standard education which students receive. Instead of asking about the “models” in use, and assessing adequacy or failure of their “assumptions”, at the meta-level we ask how economists began to use these models instead of others, what kind of thoughts are promoted by such models, and what kinds of thoughts are blocked, because the models are incapable of expressing such ideas. This kind of higher-level thinking is completely missing from conventional textbooks.
To highlight the differences, we consider as an illustrative example, how Martin Osborne begins his textbook on game theory, and explains what game theory is about:
GAME THEORY aims to help us understand situations in which decision-makers interact. … the range of situations to which game theory can be applied: firms competing for business, political candidates competing for votes, jury members deciding on a verdict etc. etc. etc. .
Next, note what famous game-theorist Ariel Rubinstein has to say about this issue: “Nearly every book on game theory begins with the sentence: ‘Game theory is relevant to …’ and is followed by an endless list of fields, such as nuclear strategy, financial markets, the world of butterflies and flowers, and intimate situations between men and women. Articles citing game theory as a source for resolving the world’s problems are frequently published in the daily press. But after nearly forty years of engaging in this field, I have yet to find even a single application of game theory in my daily life” (see Quotes Critical of Economics).
There is a strong conflict here. Martin Osborne tells us that game theory helps us to understand a huge variety of different situations. However, Ariel Rubinstein tells us that he has not been able to find even one useful application of game theory in forty years. Which of these two thoughts is correct? How can we tell who is wrong and who is right? We need to compare and evaluate these two thoughts, which required meta-thinking. Also, we are concerned with evaluating knowledge claims – what do we know, and what we do not know. So, this is a topic in epistemology.
Of central importance to us in resolving these issues is the concept of a “MODEL”. What is a model, and how does it relate to reality? Here is what Martin Osborne writes: “Like other sciences, game theory consists of a collection of models. A model is an abstraction we use to understand our observations and experiences. What “understanding” entails is not clear-cut.” This last sentence is revealing. Economists do not understand what a model is, and how it helps us to understand the real world. You will find often repeated assertions that “models are simplifications of reality” and that “models are always false”. These maxims are not helpful in understanding models. Actually the “simplification” that models perform is of a very special type == models set out for us “what matters” and also exclude “what does not matter”. The variables and descriptors we use are the ones which matter. Anything which does not enter into the theory does not matter. This despite textual assertions to the contrary — what we are being taught in the economics textbooks does not lie in the words that are written — it is contained in the words that are not written. By not writing about compassion for the hungry, and social responsibility, we are told that these are not relevant concepts for the economic system – these things do not matter. So one function of models, not explicitly mentioned, is to tell us what is important and to separate these variables from the large numbers of variables which do not matter. The second function is to specify the chains of causation. Consumers have incomes and they make consumption decisions. Investors borrow money to invest. Firms make production decisions. All of these theories provide a strong causal sequencing about how things happen, what happens first, what happens next as a consequence. This actually sets up the exogenous variables and the endogenous variables, again without any explicit mention of causality. A third aspect of models sets up superstructures as well as constructing RULES which are used to evaluate models. These we will discuss later, when we discuss the three major categories of models, in the next section. Also of essential importance is the question of how models “explain” – how they “help us to understand” – reality. This will also be discussed in greater detail later.
RELATED POSTS: On the Central Importance of a Meta-Theory for Economics. and Meta-Theory and Pluralism in the Methodology of Polanyi This is the 3rd post in a sequence; The first two are: Mistaken Methodologies of Science 1 and Models and Realities 2 The NEXT post is Errors of Empiricism 4