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Thursday, December 19, 2013

'Is Finance Guided by Good Science or Convincing Magic?'

Tim Johnson:

Is finance guided by good science or convincing magic?: Noah Smith posted a piece on "Freshwater vs. Saltwater" divides macro, but not finance.  As a mathematician the substance of the piece wasn't that interesting (a nice explanation is here) but there was a comment from Stephen Williamson that really caught my attention

Another thought. You've persisted with the view that when the science is crappy - whether because of bad data or some kind of bad equilibrium I guess - there is disagreement. ... What's at stake in finance? The flow of resources to finance people comes from Wall Street. All the Wall Street people care about is making money, so good science gets rewarded. I'm not saying that macroeconomic science is bad, only that there are plenty of opportunities for policymakers to be sold schlock macro pseudo-science.

 What I aim to do in this post is offer an explanation for the 'divide' in economics from the perspective of moral philosophy and on this basis argue that finance is not guided by science but by magic. ...

    Posted by on Thursday, December 19, 2013 at 11:43 AM in Economics, Methodology | Permalink  Comments (19)

          


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