Posts filed under ‘Methods/Methodology/Theory of Science’
Robustness
| Nicolai Foss |
Empirical economists tend to exalt the property of “robustness.” Robustness is a priori taken to be epistemologically virtuous. However, this is not so obvious as it may seem. As Kevin Hoover points out in the preface to the most recent (June) issue of the Journal of Economic Methodology, most of which is dedicated to a symposium on “Fragility and Robustness in Econometrics”:
The idea that robustness is an epistemic virtue across the entire range of measures is not obvious. Suppose that the efficient-markets hypothesis works well in the United States but not in China. Does that count against the efficient-markets hypothesis? Or does it instead point to a substantive difference between American and Chinese financial markets?
A lot of things in econometrics are closely related or depend on robustness, such as omitted-variable bias and extreme-bounds analysis, but robustness has seldom been explicitly discussed. The contributors to the symposium are John Aldrich, Aris Spanos, and Jim Woodward. For somebody who is not an econometrics buff, Jim Woodward’s “Some Varieties of Robustness” is likely to be particularly informative.
The New Growth Theory
| Nicolai Foss |
I am reading David Warsh’s Knowledge and the Wealth of Nations: A Story of Economic Discovery. Although the book contains little that will be new to those with some knowledge of the history of economics and recent growth theory, it is worth reading because it is beautifully written, contains some juicy gossip, and has a clear storyline. In other words, excellent Summer reading.
A notable feature of the book is portraying the development of new growth theory as a remarkable instance of scientific discovery. Eight years ago, I published a paper in the Journal of Economic Methodology, “The New Growth Theory: Some Intellectual Growth Accounting” (here is an earlier paper version) that took issue with this claim. My argument was that the NGT was successful for purely heuristic reasons. The argument may have been over the top, or the NGT may have changed since 1998. Anyway, here is the abstract:
This paper discusses the reasons for the success of the New Growth Theory. Given that the NGT does not appear to say much new about empirical reality, that its essential ideas have been known for a long time, and that it does not really make contact with a large literature on institutions and economic change, its strong success may arguably be seen as surprising. Or, at least, its success may appear peculiar to Lakatosian methodologists, and others who emphasize notions such as “novel facts”. The reason for the success of the NGT is argued to lie in its constituting a case of strong heuristic progress: it brought growth through knowledge accumulation within the confines of neoclassical economics, and thus demonstrated the continued viability of this research tradition.
Latent Variables and Structural Equations Modeling
| Peter Klein |
Among my PhD students I note an increasing interest in structural equations modeling (SEM), particularly for working with latent variables. One student’s dissertation uses SEM to study the effect of the institutional environment on entrepreneurship, treating entrepreneurship as a latent variable and using measures of new business starts, patent filings, and the like as the corresponding manifest variables. Another student is using SEM to examine free-riding among members of a large cooperative, with various observable behaviors serving as indicators for the latent variable free-riding.
More generally, SEM is becoming a standard tool in management, where abstract concepts like trust, knowledge, capabilities can (potentially) be modeled as latent variables in a system of equations. Indeed, when I visited Nicolai in his office in Copenhagen a couple of weeks ago, the first thing I noticed on his desk was a LISREL manual, prominently displayed on the corner. (He assures me it is not for show.) (more…)
Quote of the Day
| Nicolai Foss |
David Colander: “Is game theory the answer to everything?”
Ken Binmore: “Yes. All of social science is just a branch of game theory. Unfortunately, we don’t know much game theory yet, and so this insight doesn’t get us very far!”
Quoted from p. 74 of Colander, Holt and Rosser.2004. The Changing Face of Economics: Conversations With Cutting Edge Economists.
Information versus Knowledge
| Peter Klein |
Here’s a fascinating symposium from the April 2005 issue of EconJournalWatch on the distinction between information and knowledge in economics. The contributors are Brian Loasby, Thomas Mayer, Bruce Caldwell, Israel Kirzner, Leland Yeager, Robert Aumann, Ken Binmore, and Kenneth Arrow. (Via Jeff Tucker)
George Gilder on the Evolutionary Metaphor
| Peter Klein |
Returning to our previous discussion of teleology in social-science explanation, the current issue of National Review has an essay by George Gilder, co-founder of the pro-ID Discovery Institute, summarizing his complaints about the neo-Darwinian model. (The electronic version is behind a subscription firewall, but a copy is here.) This passage caught my eye:
Turning to economics in researching my 1981 book Wealth & Poverty, I incurred new disappointments in Darwin and materialism. Forget God — economic science largely denies intelligent design or creation even by human beings. Depicting the entrepreneur as a mere opportunity scout, arbitrageur, or assembler of available chemical elements, economic theory left no room for the invention of radically new goods and services, and little room for economic expansion except by material “capital accumulation” or population growth. Accepted widely were Darwinian visions of capitalism as a dog-eat-dog zero-sum struggle impelled by greed, where the winners consume the losers and the best that can be expected for the poor is some trickle down of crumbs from the jaws (or tax tables) of the rich.
In my view, the zero-sum caricature applied much more accurately to socialism, which stifles the creation of new wealth and thus fosters a dog-eat-dog struggle over existing material resources. (For examples, look anywhere in the socialist Third World.) I preferred Michael Novak’s vision of capitalism as the “mind-centered system,” with the word itself derived from the Latin caput, meaning head. Expressing the infinite realm of ideas and information, it is a domain of abundance rather than of scarcity. . . . Ultimately capitalism can transcend war by creating rather than capturing wealth — a concept entirely alien to the Darwinian model.
Leaving aside that Darwin copied Spencer, rather than vice-versa (though Spencer may have been misinterpreted), Gilder correctly notes an analogy between evolutionary explanations in biology — in which outcomes are the result of blind, purposeless forces — and evolutionary models in economics and sociology, in which human agency, too, seems to get short shrift. (more…)
Intelligent Design and the Sociology of Science
| Peter Klein |
Don’t worry, we’re not getting all weird on you and entering the fray on creationism and evolution. Today’s topic is the theory and practice of science. Specifically, consider the controversy over intelligent design (ID), the idea that purely natural forces — i.e., random mutation and natural selection — cannot explain the origin and diversity of life. What are the most common arguments against including ID in the science curriculum?
1. ID is wrong because it contradicts the scientific evidence.
2. ID is wrong because it isn’t science (e.g., it does not offer testable predictions). Leave it in the philosophy or theology classrooms.
3. ID is wrong because “serious scientists” all think it’s nonsense.
The second and third arguments seem to pop up the most in conversations I’ve seen and heard. They are taken by their proponents as self-evident. But #2 obviously presupposes a particular philosophy of science, and #3 a particular sociology of science. One rarely sees these philosophies articulated and defended. Is prediction the hallmark of science? Does neo-Darwinian theory make falsifiable predictions? How does scientific consensus emerge? On what grounds to scientists accept or reject theories? (Argument #3, in particular, seems to presuppose a charmingly pre-Kuhnian worldview.)
As an aside, I know several “heterodox” economists who reject ID primarily on ground #3, which I find highly ironic. They see themselves as (unjustifabily) outside the mainstream of their own discipline, but assume that in natural science the consensus is always right.
Copying the Physicists
| Peter Klein |
It’s no secret that mainstream economists hold up physics as the model science. (Critics say that economists never got much beyond nineteenth-century classical mechanics, but never mind.) So why should we be surprised that economists also copy the physicists’ style and manners? From T. A. Abinandanan of the Nanopolitan blog we learn that physicists are widely regarded, by their natural-science brethren, as bullies who wander into other fields without much knowledge of or appreciation for the work of specialists.
The natives of the other disciplines, of course, would grumble because they felt that many of these wandering physicists were promiscuous (with no long term commitment to their field) and, more importantly, arrogant. . . . Among the natives, the joke is that these promiscuous physicists were just looking for interesting problems, because there weren’t any in physics.
Just what we’ve been discussing here and here. Incidentally, on “econophysics,” profiled last year in the New York Times, Abinandanan wisely adds that “[g]iven the reputation of physics and economics in their respective domains (natural and social sciences), econophysics sounds like a marriage between two domineering individuals.”
Overview of Behavioral Economics
| Peter Klein |
Behavioral economics is profiled in “The Marketplace of Perceptions,” from the March-April 2006 Harvard Magazine. Not a puff piece, exactly, but certainly a very friendly account. Excerpt:
As recently as 15 years ago, the sub-discipline called behavioral economics — the study of how real people actually make choices, which draws on insights from both psychology and economics — was a marginal, exotic endeavor. Today, behavioral economics is a young, robust, burgeoning sector in mainstream economics, and can claim a Nobel Prize, a critical mass of empirical research, and a history of upending the neoclassical theories that dominated the discipline for so long.
(HT: Greg Mankiw)
More on Economics and the Contiguous Disciplines
| Peter Klein |
Monday’s post on the accusation that contemporary economists focus too heavily on “puzzles,” rather than real problems, elicited a number of interesting responses. Tom Schenk alludes to Coase’s suggestion that economists are shying away from their traditional areas of interest because they can’t solve the standard problems. Coase is worth quoting in full:
Economists are extending the range of their studies to include all of the social sciences. . . . What is the reason why this is happening? One completely satisfying explanation . . . would be that economists have by now solved all of the major problems posed by the economic system, and, therefore, rather than become unemployed or be forced to deal with the trivial problems which remain to be solved, have decided to employ their obviously considerable talents in achieving a similar success in the other social sciences. However, it is not possible to examine any area of economics with which I have familiarity without finding major puzzles for which we have no agreed solutions, or, indeed, questions to which we have no answers at all. The reason for this movement of economists into neighbouring fields is certainly not that we have solved the problems of the economic system; it would perhaps be more plausible to argue that economists are looking for fields in which they can have some success.
Steve Sailer, who has gained a reputation as Steve Levitt’s most vocal critic (1, 2), suggests that the problem is not the application of economic analysis to neighboring disciplines per se, but rather economists’ tendency to apply their tools to subjects in which they lack the necessary background knowledge and expertise. “My objection to Levitt’s work is not that he’s wasting his vast analytical powers on trivial subjects, but that his analytical powers have too often been found inadequate for the magnitude of his subjects.” (more…)
We Need Some Economics of Pomo
| Nicolai Foss |
I am re-reading Tyler Cowen’s excellent What Price Fame? for the second time. I continue to be amazed by the number of bright ideas that this slim volume is packed with. Among the many observations of the ways that celebrities and critics can game their mutual relations is this one:
Some performers manipulate the style of their product to shift the incentives of critics to pay attention … Unclear authors, at least if they have substance and depth, receive more attention from critics and require more textual exegesis. Individual critics can establish their own reputations by studying such a writer and by promoting one interpretation of that writer’s work over another. These same critics will support the inclusion of the writer in the canon to promote the importance of their own criticism … In the economics literature, enormous attention is devoted to the vagaries of John Maynard Keynes’ General Theory. The monetary writings of Milton Friedman or Irving Fisher, far clearer and not inferior as practical guides to monetary policy, do not receive equal attention from historians of thought (p.34-5).
Perhaps this observation may help us to account for the increasing prominence of pomo ideas in management (economics seems so far to have stayed almost immune to this disease). (more…)
Economics: Puzzles or Problems?
| Peter Klein |
I’ve enjoyed reading Wittgenstein’s Poker: The Story of a Ten-Minute Argument Between Two Great Philosophers, an engaging account of the famous “poker incident” at which Ludwig Wittgenstein may or may not have threatened a visiting Karl Popper with a fireplace poker during a 1946 meeting of Cambridge’s Moral Sciences Club. David Edmonds and John Eidinow perform a forensic reconstruction and conclude that Popper probably exaggerated what happened but that Wittgenstein did act like a boor. More important, Edmonds and Eidinow explore the background and aftermath and use the incident to anchor an elegant survey of twentieth-century philosophy putting Popper’s and Wittgenstein’s contributions in context.
(Incidentally, neither philosopher comes across as the sort of guy you’d want to spend an evening with. Popper appears petty and insecure, almost paranoid. As for Wittgenstein . . . I’m no philosopher, but I know what I like, and Wittgenstein — in his later incarnation, anyway — isn’t it. He’s revealed here as a spoiled brat, petulant and overbearing, and his linguistic approach to philosophy strikes me as little more than clever nonsense. In the spirit of full disclosure, I should mention that I first heard about the poker incident from Popper’s student W. W. Bartley, III, who was far from impartial. See The Fortunes of Liberalism, p. 179, footnote 5.)
At issue between Popper and Wittgenstein that night was the status of philosophy itself. Are there real philosophical problems, as Popper maintained, or merely “puzzles,” as Wittgenstein and his disciples insisted? Contemporary analytic philosophy has tended to gravitate toward the latter view, that philosophy is little more than word-play, a fun and interesting exercise but one with little bearing on the “big questions” of life.
What about economics? Over the last couple of decades economists have paid less attention to the “big questions” of unemployment, inflation, capitalism versus socialism, the quality of life, and so on, focusing instead on finding clever solutions to small, empirical puzzles — call it the “Freakonomics approach.” There are exceptions to this trend — the literature on institutions and economic growth, for example — but on the whole economists seem more interested in puzzles than problems. (more…)
Cliometrica
| Peter Klein |
We already have Econometrica and Psychometrika, so it was only a matter of time before the economic historians — whose Cliometric Society has been around since 1983 — started a new quantitative economic history journal, Cliometrica. I received an announcement today, which included this description:
The journal encourages the methodological debate, the use of economic theory in general and model building in particular, the reliance upon quantification to buttress the models with historical data, the use of the more standard historical knowledge to broaden the understanding and suggesting new avenues of research, and the use of statistical theory and econometrics to combine models with data in a single consistent explanation.
I'm not sure how this is supposed to distinguish the journal from the Journal of Economic History or Explorations in Economic History; perhaps they are not quantitative enough? (more…)
Continuing the Micro-foundations Crusade
| Nicolai Foss |
With Teppo Felin and Peter Abell, I am continuing the crusade for building micro-foundations for management theory that Teppo and I initiated with our editorial essay in Strategic Organization last year ( “Strategic Organization: a Field in Search of Microfoundations"). We have now written the paper, "Building Micro-foundations for the Routines, Capabilities and Performance Links" as a further stride forward in the struggle against macro-mysticism in strategic management and organization theory. Here is the abstract:
Micro-foundations have become an important emerging theme in strategic management. This paper addresses micro-foundations in two related ways. First, we argue that the kind of macro (or “collectivist”) explanation that is utilized in the capabilities view in strategic management –which implies a neglect of micro-foundations –is incomplete. There are no mechanisms that work solely on the macro-level, directly connecting routines through capabilities to firm-level outcomes. While routines and capabilities are useful shorthand for complicated patterns of individual action and interaction, ultimately they are best understood at the micro-level. Second, we provide a formal model that shows precisely why macro explanation is incomplete and which exemplifies how explicit micro-foundations may be built for notions of routines and capabilities and for how these impact firm performance.
Because we may submit to a journal that prohibits uploading of papers while they are under review, reluctantly I must refrain from making the paper downloadable . However, If you would like to get a copy, send me a mail on njf.smg@cbs.dk
Wicksteed on “Economic Man”
| Peter Klein |
As an economist, I'm continually frustrated by complaints from my fellow social scientists that economics falsely conceives human beings as narrow, selfish, greedy materialists — a canard refuted in even the most elementary textbooks. Economics is a theory of preference and action; it assumes nothing whatsoever about the content of people's preferences, whether they be noble or base, pure or vile, or whatever.
The proper conception of economics as a general theory of action has been around for, I don't know, about a hundred years, at least. I recently came across this nice statement from Lionel Robbins, introducing the 1933 edition of Philip Wicksteed's Common Sense of Political Economy (1910).
Before Wicksteed wrote, it was still possible for intelligent men to give countenance to the belief that the whole structure of Economics depends upon the assumption of a world of economic men, each actuated by egocentric or hedonistic motives. For anyone who has read the Common Sense, the expression of such a view is no longer consistent with intellectual honesty. Wicksteed shattered this misconception once and for all. . . .
[Modern value theory has] thrown the whole corpus of economic science into an entirely new light — a light in which Economics is seen to be a discussion not of the nature of certain kinds of behavior arbitrarily separated off from all others, but of a certain aspect of behavior viewed as a whole. . . . [W]hen [the] final history [of modern economics] comes to be written, I think it will be found that Wicksteed's exhaustive examination of the "economic relationship," and his insistence that there can be no logical dividing line between the operations of the market and other forms of rational action, are by no means among the least important or least original." (pp. xxi-xxii)
I wonder how much of the current contretemps over economic methods in organization and management is simply a re-hash of controversies already covered by Wicksteed, Clark (1, 2), Robbins, etc.
Paradoxes in the RBV?
| Nicolai Foss |
One of the hallmarks of pomo (postmodernist) "discourse" (or "conversation") is the indiscriminate use of the word "paradox." In management, organizational scholars are particularly prone to use the p word. I have sat in countless seminars and witnessed several conference presentations where the presenters declared some paradox to exist, in theory, in practice or in both. I have never been successful in my attempts to argue that upon closer inspection (better analysis) the postulated paradoxes usually vanish.
In terms of management journals, one of the pomo strongholds is unfortunately one of our leading journals, the Academy of Management Review. I am pretty much behind in my reading of AMR. But this morning I opened the January 2006 issue, and performed my usual vain search for articles that cited my works. I quickly found Lado, Boyd, Wright and Kroll's "Paradox and Theorizing Within the Resource-based View."
The authors claim to use "paradox in the logical sense to address epistemological issues surrounding RBV logic, such as unfalsifiability, tautology, and infinite regress" (p.117). They argue that they embed their understanding in a non-traditional view of science (in contrast to those — such as Foss (1996; "Knowledge-based Approaches to the Theory of the Firm," Org Science) — who allegedly holds "… that the presence of paradox within a theory undermines its scientific utility" (Foss 1996 says no such thing)). (more…)
Interview With Mark Blaug
| Peter Klein |
You readers with a passion for economic methodology (yes, both of you) will enjoy this interview with Mark Blaug. (HT to Rafe Champion, who calls Blaug "the man who did more than anyone to generate the cottage industry of 'new philosophy of science applied to economics.' ")
One excerpt: Blaug's problem with contemporary economics is
not just that economics has become technical; it is that economics prizes technicalities above everything else, and that is why I call it formalism. Formalism is the tendency to worship the form rather than the content of the argument. That is the kind of subject it has become. We care only about the form in which an economic theory or hypothesis is presented, and we care almost nothing about the actual content of the hypothesis.
I have my own problems with formalism, but I think Blaug overstates his case. His characterization may apply to general-equilibrium models in macroeconomics, growth theory, and some other fields, but in applied microeconomics (contract theory, agency theory, labor economics, parts of industrial organization) the situation is not nearly so dire. (more…)
Formal Economic Theory: Beautiful but Useless?
| Peter Klein |
Greg Mankiw, reflecting on the "poetry" of Paul Romer's growth theory, offers this assessment of modern, mathematical, neoclassical economic theory: "Too much of it is beautiful but useless."
Let's leave beauty in the eye of the beholder, for now, and focus on the second part of Mankiw's description. How much has formal, mathematical economic theory contributed to our understanding of the world? What economic phenomena do we understand better today than we did, say, before World War II, when the principal language of English-speaking economists was, well, English? (more…)
Passion, Blogging, and Manuel Castells
| Nicolai Foss |
It seems that one of the functions of blogging is to allow people to exercise the passion that they cannot exercise anymore in the writing they do for journals (I have to mention, however, that my co-blogger and I were recently taken to task by a journal reviewer for not exhibiting sufficient “passion and excitement” in the conclusion part of a joint paper).
Look at the econ journals prior to World War II. Plenty of flames and shouting. Admittedly, much of it unproductive, but highly entertaining (e.g., check out John Maynard Keynes’ wildly hysterical, over-the-top review of Hayek’s Prices and Production in Economica 1932; discussed in this book. Of Hayek’s gloomy book, Keynes said: “The abyss yawns — and so do I”).
Whatever the scientific merits of the average paper in the Econometrica or the Journal of Economic Theory, one is not exactly struck by the level of “passion and excitement” that they project. (more…)
How Bad Is Academic Writing, Really?
| Peter Klein |
Few social scientists are known for their lucid and elegant prose. Frank Knight or Joseph Schumpeter, perhaps. Most academic writing, however, is just plain awful: dull, pedantic, full of jargon and unnecessarily complex words and phrases, generally painful to read. Most manuscripts in organizational economics and strategy should come with a warning: “Do not operate heavy machinery after reading.”
How bad is it, exactly? Can bad writing be quantified? Yes, according to a new (to me, anyway) feature from Amazon.com. For some books — those for which Amazon offers the “Search Inside” feature — Amazon now provides several objective measures of readability. (more…)
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