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All economic models will be broken

Econ blog Worthwhile Canadian Initiative has a great graph of S&P values, 1962-1992; then up thru 2007.

But they couldn't get a nice, two variable model to fit the data.
 
Naturally, a 'more complex' model might be more accurate, but then it loses  its elegance.

All models will fail to predict human financial behavior, not too long after they become reliable enough to be used for 'making money'.

Once a model can be used to make money, thru a behavior change by the model using money maker, more folks will change behavior to make money thru that change, and then the model will break.


Then the same folks write up a complex argument to answer the tough question:
will-deficit-spending-in-fact-be-money financed?

Well, their answer is that it will be.
If this means the Fed / Treasury should be sending out checks of USD to taxpayers, I agree with them.


Wow,  a great graph on Bayesian models!
.
Before looking at the Gelman data/ discussion, I should note my own a priori feeling that no other model building process will be better Bayesian for the intractable problems.

There's also an issue of data abundance, for instance on the risk of house foreclosures.  If the data is by years, the last 30 years isn't so much; by months the same data becomes more, and by day it expands even more.  But the usefulness of day data on house foreclosures is not 365 times greater than annual average year data, maybe not even twice as informative.

Modern data collection techniques, as well as rocket science risk management, might well disguise an intractable problem.

Posted by: TomGrey at 11/26/08 02:19 | link | comments (1)
economics

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#1  12 August 2009 - 09:48

 

All roads lead to Rome.

Anonymous

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