December 19, 2013

Will mainstream economics look like ecological economics and literary criticism?

After attending Robert Shiller's Nobel lecture, as mainstream an event as you can get, John Cochrane reaches this conclusion:
I realized just how deep and audacious Bob's project is. He is telling us to abandon the "scientific" pretense. He wants us to adopt a literary style, where we look at the world, are inspired by psychology, and write interpretive prose as he has done. When he says that the definition of a bubble is a fad, he isn't being sneaky and avoiding the argument. He means exactly what he says and wants us to think and write this way too. A bubble, to Bob, is defined as any time that he, writing about it, informed by psychology, and reading newspapers, thinks a "fad" is going on. And he invites us to think and write like that too. A model is, to Bob, wrapped up in one person's judgement and not an objective machine. If I complain that this is ex-post story telling, he might say sure, stop pretending to be physics, write ex-post stories. If I complain that there are no rules and that this is no better than "the gods are angry," he might say, no, read psychology not ancient theology, and the rules are you have to couch your story telling in their terms. He does not want us to try to construct models, either psychological or rational, that make quantitative predictions.

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