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Chameleons: The Misuse of Theoretical Models in Finance and Economics

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  • Paul Pfleiderer

Abstract

In this paper I discuss how theoretical models in finance and economics are used in ways that make them ‘chameleons’, and how chameleons devalue the intellectual currency and muddy policy debates. A model becomes a chameleon when it is built on assumptions with dubious connections to the real world but nevertheless has conclusions that are uncritically (or not critically enough) applied to understanding our economy. I discuss how chameleons are created and nurtured by the mistaken notion that one should not judge a model by its assumptions, by the unfounded argument that models should have equal standing until definitive empirical tests are conducted, and by misplaced appeals to ‘as if’ arguments, mathematical elegance, subtlety, assumptions that are ‘standard in the literature’, and the need for tractability.

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  • Paul Pfleiderer, 2020. "Chameleons: The Misuse of Theoretical Models in Finance and Economics," Economica, London School of Economics and Political Science, vol. 87(345), pages 81-107, January.
    • Handle: RePEc:bla:econom:v:87:y:2020:i:345:p:81-107
    DOI: 10.1111/ecca.12295
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    Cited by:

    1. Max Albert, 2022. "How to Escape from Model Platonism in Economics: Critical Assumptions, Robust Conclusions, and Approximate Explanations," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 39(1), pages 37-68, October.
    2. Marc Badia & Miguel Duro & Fernando Penalva & Stephen G. Ryan, 2021. "Debiasing the Measurement of Conditional Conservatism," Journal of Accounting Research, Wiley Blackwell, vol. 59(4), pages 1221-1259, September.
    3. Andrea Saltelli & Arnald Puy, 2023. "What can mathematical modelling contribute to a sociology of quantification?," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-8, December.
    4. Octavian-Dragomir Jora & Matei Alexandru Apavaloaei & Mihai-Vladimir Topan & Tudor-Gherasim Smirna, 2022. "The Market for Ideas and Its Validation Filters: Scientific Truth, Economic Profit and Political Approval," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 24(Special16), pages 884-884, November.
    5. Hatcher, Michael & Minford, Patrick, 2023. "Chameleon models in economics: A note," Cardiff Economics Working Papers E2023/10, Cardiff University, Cardiff Business School, Economics Section.

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