Excessive Ambitions
The current financial crisis has brought out a fatal flaw in the foundations of the economic theories that guided economic agents and regulators: the unwarranted claim to precision and robustness. In this article I try to diagnose this flaw and discuss possible remedies. I argue that actual agents are intrinsically less sophisticated than the models assume they are, and that the various proposals to sustain the models by appealing to "as-if rationality" all fail. I next consider behavioral economics as an alternative to the standard models, claiming that while they may allow for successful retrodiction, they do not hold out much promise for prediction. I also discuss the use of statistical models, arguing that they are subject to so many traps and pitfalls that only a handful of elite practitioners can be trusted to use them well. Finally, I offer some speculations to explain the persistence in the economic profession and elsewhere of these useless or harmful models.
©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston
Articles in the same Issue
- Article
- Excessive Ambitions
- Financial Markets and the State: Long Swings, Risk, and the Scope of Regulation
- Capitalist Entrepreneurship: Making Profit through the Unmaking of Economic Orders
- The New Economy Business Model and the Crisis of U.S. Capitalism
- Discussion and Commentary
- Comment on "Excessive Ambitions" (by Jon Elster)
- Comment on "Excessive Ambitions" (by Jon Elster)
- Comment on "Financial Markets and the State: Long Swings, Risk, and the Scope of Regulation" (by Roman Frydman and Michael D. Goldberg)
- Comment on "Capitalist Entrepreneurship: Making Profit through the Unmaking of Economic Orders" (by Thorbjørn Knudsen and Richard Swedberg)
- Comment on "The New Economy Business Model and the Crisis of U.S. Capitalism" (by William Lazonick)
Articles in the same Issue
- Article
- Excessive Ambitions
- Financial Markets and the State: Long Swings, Risk, and the Scope of Regulation
- Capitalist Entrepreneurship: Making Profit through the Unmaking of Economic Orders
- The New Economy Business Model and the Crisis of U.S. Capitalism
- Discussion and Commentary
- Comment on "Excessive Ambitions" (by Jon Elster)
- Comment on "Excessive Ambitions" (by Jon Elster)
- Comment on "Financial Markets and the State: Long Swings, Risk, and the Scope of Regulation" (by Roman Frydman and Michael D. Goldberg)
- Comment on "Capitalist Entrepreneurship: Making Profit through the Unmaking of Economic Orders" (by Thorbjørn Knudsen and Richard Swedberg)
- Comment on "The New Economy Business Model and the Crisis of U.S. Capitalism" (by William Lazonick)
