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Younghusband
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Younghusband

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January 28th, 2010

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Nine nonsense beliefs

Nils Gilman posted a series of “nonsense beliefs” on his Twitter account, but didn’t reproduce them on his blog for discussion, so I have taken the liberty to reproduce them here as I think Twitter is not a good forum for debating such propositions. Here are the nine:

1) In the economic system, what you can’t count doesn’t count.
2) The environment is an externality—it doesn’t ‘count’.
3) What can’t be measured can’t be reasoned about: it’s either economics or irrationality.
4) In economic terms, sacrificing near-term gains for possible long-term benefits for posterity is irrational.
5) Probability and harm can be priced, and so every risk has its price.
6) Everything has its price.
7) By definition, profit maximisation is social responsibility.
8) By definition, markets are efficient and regulation inefficient.
9) We can use the past to model and predict the future.

My quick take just to get the discussion rolling: as any historian will tell you, context is important (1 and 2); I am iffy on 3 since concepts (justice, morality) can be reasoned about but metrics are handy especially when policy-making; yes on 4; i don’t get 5; 6 is not nonsense (except in quantum mechanics) since price doesn’t necessarily mean gold; 7 I agree; 8 is a strawman argument so I agree; 9 conflates “prediction” with “forecasting”, which I am not sure Nils is clear on.

Since these are all short tweets the points are difficult to qualify and we must tread carefully. That said, I think it is a good check list for examining bias, and a good discussion starter.

Comments to this entry

Alfred Russel Wallace
January 28, 2010
12:31 pm
Are you agreeing they are nonsense?
Oliver
January 28, 2010
12:49 pm
Putting a price on a risk that, if realized, would mean the extinction of the human species, makes no sense as nobody would be around to pay or be payed. In that sense #5 is nonsense.

It is also wrong, as you cannot insure a risk that is larger than a small share of the world's GDP, because nobody could pay the damages.
Nils
January 28, 2010
1:58 pm
My main point in writing these (and I'll confess that I stole them from somewhere else), is that these beliefs have been central to the way that finance capital, and economic theory, has been organized over the last generation or two. With that said, they are admittedly incommensurate forms of nonsense....

As you point out, they are all problematic in different ways. The first one is nonsense because it's clear to anyone who bothers to look around that there are many important things in life that are immeasurable -- beauty, love, decency, nastiness (basically, the realms of ethics and aesthetics, as opposed to science). One can shoehorn measurements onto these things (typically, via prices), but only a monster would deny that such measures usually lose something critical about the phenomena they are measuring. How exactly would one comparatively measure two mothers' love for their children in any way that wasn't grotesque? The second one is a sub-bullet of the first, and just points out that one particular thing that hasn't been being measured/metered is the environment...

And so on.
tdaxp
January 28, 2010
2:35 pm
As I understand that -- all nine of his "nonsensical beliefs" are simple correlaries
(if occasionally badly mistated ones, such as #9) of the fact that all quantitative models are simplifications of reality. Great. He passed a basics stats course.
Jeff
January 28, 2010
3:01 pm
Economists don't like "irrational" behavior, because they rarely quantify hard to quantify things like psychology. There are exceptions (see, Freakonomics and other good behavioral economists), but it often feels like the economists who are running the economy don't care about things that don't have an innate dollar value attached.

Anyways:
1 and 2 are indeed about context. If its unseen how exactly are you supposed to count it?
3: is completely irrational. See the above paragraph
4: is irrational, but people do it all the time. There's a lot of psychological research about effective values. Would you rather have 100 dollars today or 110 dollars next year? Would you rather have 1 dollar today, or 10 dollars next year? You probably choose 100 today, and 10 next year, yet its the same absolute gain in value.
5: Risks are prices. This is what triage situations are. The problem is its hard to quantify them completely.
6: There's always a price in time, money, effort, or whatever, I disagree.
7+8: Yeah, I'll agree these are nonsense.
9: This is a difficult one. You can certainly use past models to predict the future, but you have to realize that models will be imprecise, based on the depth and breadth of data. Basically, with a good model, you'll see any number of specific exceptions inside a broad general trend. Does that make the model bad? Not if you account for the variability.
B
January 28, 2010
5:16 pm
I'm surprised that he didn't include "ones measurements are only as good as ones data"

Any good economist should know that...
TDL
January 28, 2010
10:06 pm
I finally figured out my problem with this list (not just the lack of context.) It is an oversimplification of economics. Furthermore, it narrowly defines the field of economics to soundbites. Not all economists are interested in quantifying or merely measuring human activities (let alone doing so mathematically.) There is much more to economics than quantifying human activities (despite the contemporary economics profession being obsessed with pretending to be physicists.) If this is an attempt to criticize the small subset of economics that focuses on financial matters there might be some value to this list, otherwise it's silly.

Regards,
TDL
Peter
January 29, 2010
1:08 am
Younghusband,

5. If you can calculate a probability of an event, and a loss given that event, you can calculate the risk of a suffering loss given that event occurs. But those usually aren't the only two factors in play. Throw in the notion that the two probabilities are often miscalculated, and also the idea that we humans suck at figuring Bayesian probabilities, and you have "mispricing" all over the place.

Welcome to structured finance!
McKellar
January 29, 2010
3:14 am
The nub of it all to me seems to be that economics uses math (abstract ideas) to try to deal with the messy realities of the concrete world. Good economists try to keep tabs on messy reality, while bad economists just use the math to extrapolate enough 'findings' to fill their next presentation or paper, making your #7 and #8 strawman tautologies. #1, 2, 3, and #5, 6 are just the result of believing too hard in your mathematical abstractions, and forgetting that numbers do not perfectly represent reality. #9 is in the same vein, pretending that history is the orderly fluctuation of variables, and not the farce of vanity and misdirection it usually is.

#4 is the purview of the small-minded and short-sighted businessman, perfectly appropriate for selling hamburgers and t-shirts. I'd like to think statesmen and captains of industry have a bit more appreciation for the bigger picture.
Anon
January 30, 2010
4:35 am
#4 refers to the discount rate of future benefits and costs and is probably the main justification for those who argue against dealing with climate change.

Even if someone is convinced that man made climate change is real, it is technically a 'rational' position to have no desire to ameliorate it, since the most devastating effects will happen after our lifetimes while the costs will be incurred in the present.

It's one of the deficiencies of neoclassical economics, but it does beg the question of whether or not we give a toss about generations we'll never see. In terms of genetics, I think after a certain number of generations, one's genes don't really express themselves anymore, so the term 'descendants' is also misleading.
kurt9
January 31, 2010
10:57 pm
I would add another non-sense belief. The notion that a modern technological society needs religion on the societal level. I believe in complete freedom of belief. However, this notion that a modern society needs Christianity on a societal level (not individual personal belief level) that is often bandied about by the U.S. social conservatives is complete horse-pucky.