A reflection of developmental economics

The beautiful girls (boys) at the other table in the library. They're compelling, they pull at your heartstrings, something _needs_ to be done. But what're you going to do?

Straw Men

One thing that's surprised me about econ grad school is how unimportant the rationality assumption of econ seems. It's such a fun thing to attack if you're some kind of nerd and want to show everyone how annoyingly nerdy you are (aren't we all?), but once you get down to business, there really are bigger fish to fry. Complete markets, homogeneity of agents, symmetric information, all seem to have profound consequences when one relaxes them, and one can see these consequences in stylized models.

Anyway, I've thought of a nice one-liner for showing how much more annoyingly nerdy I am than any other annoyingly nerdy nerd and I thought I should jot it down here for everyone including myself to ignore:

Everyone knows Newton's laws are wrong. That doesn't mean that using them to model a ballistic missile is silly.

Ok, I gotta polish that up a bit.

the value of ad-hoc (non-sober)

It's Friday night, I owe myself a post.

Intuition is like assholes. Everyone has one.

So are ad-hoc models.

What's the value of an ad-hoc model? Economic formalists may want to admit some modesty. We (should) know that our models are imperfect. If we permit only formal models, we express hubris. The value of ad-hoc models, is that they have the potential, the potential to advance the science, assuming that our assholes (our intuition) has some value.

I will readily admit that despite the lack of a formal foundation for arbitrarily regressing variables on other variables, and despite my distaste for such practices, that there is obviously a potential for such "models" to add to our understanding of society.

What Financial Economics could learn from Langhorne Slim

Start your talk in a suit and hat. Work up a fury. End it in a wife-beater.

It's not what you optimize, it's how you optimize it (non-sober)

Reflections on Hill Climbing Likelihood Maximization: Consider Alice and Bob with the same preferences. Alice choose the Hill Climbing Method. Bob goes for it with straight-up Newton Raphson.

Which economy has more growth? Stability? Does Alice slow and steady win the race?

Can I buy a vowel? (non-sober)

When do people buy vowels in Wheel of Fortune? They're buying signals.

A harder problem: what if Trebeck (or whoever) is playing the game too. When does he sell a vowel?

Intuition, Maths, Pornography.

Good intuition is like pornography. (I know it when I see it)

Good math is like... ...

Goldilocks proposition of theories

Ok I had already written this, but this time it'll be better:

A good theory finds the Goldilocks spot. It's not so simple that it's useless. It's not so complex that it's incomprehensible.

One strong hope of professional economics is that pop economics is frequently useless.

Theoretical theory

A theory is something that wants to reduce data.

A good theory is something that reduces data.

Goldilocks, Neutron Stars, and Complete Markets (and Dentistry)

A theoretical physicist friend of mine is very excited to start a new project. (from what I can understand) It's new theoretical model of neutron stars.

Why neutron stars? Apparently it's because white dwarfs are not dense enough, and black holes are too dense.

My most recent "project," (making very loose use of the word project) involved a Robinson Caruso (sp) economy with complete markets. That is, I tried to study an economy of one immortal guy living alone on an island and has access to markets which can let him trade contingent claims on any possible future resolution of all uncertainty that is relevant to him. Oh, and this Robinson Caruso is both immortal and meticulously uses probability theory to make decisions.

I suppose I did this because having Robinson live for only one date is won't capture enough dynamics of the economy, and having two people on that island, incomplete markets, and anything else would make this, um, too, hard.

I should probably add to this description of theory nerds by saying that, I think, we both are trying to study a bigger question. For my friend, it's (I think) how does nuclear matter behave. For me, it's how do financial markets work.

But neutron stars actually exist. They'll let you test your theory. I suppose even if economists could get data from robinson caruso economies that let them test their theories, I'd have significant doubts that those theories can be applied to our economy.

And to make things more realistic, we'll need to get (even more) esoteric. So much for dentistry.

Disclaimer

I don't drink much, nor often.

So updates may be infrequent, or sober.