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Excessive Ambitions

Listed author(s):
  • Elster Jon

    (Collège de France and Columbia University)

Registered author(s):

    The current financial crisis has brought out a fatal flaw in the foundations of the economic theories that guided economic agents and regulators: the unwarranted claim to precision and robustness. In this article I try to diagnose this flaw and discuss possible remedies. I argue that actual agents are intrinsically less sophisticated than the models assume they are, and that the various proposals to sustain the models by appealing to "as-if rationality" all fail. I next consider behavioral economics as an alternative to the standard models, claiming that while they may allow for successful retrodiction, they do not hold out much promise for prediction. I also discuss the use of statistical models, arguing that they are subject to so many traps and pitfalls that only a handful of elite practitioners can be trusted to use them well. Finally, I offer some speculations to explain the persistence in the economic profession and elsewhere of these useless or harmful models.

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    File URL: https://www.degruyter.com/view/j/cas.2009.4.2/cas.2009.4.2.1055/cas.2009.4.2.1055.xml?format=INT
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    Article provided by De Gruyter in its journal Capitalism and Society.

    Volume (Year): 4 (2009)
    Issue (Month): 2 (October)
    Pages: 1-33

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    Handle: RePEc:bpj:capsoc:v:4:y:2009:i:2:n:1
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