Subject: Re: Economics and the Dart Board 
Distribution: world
Organization: Keristor Systems
X-Mailer: Simple NEWS 1.90c (ka9q DIS 1.18, CC 1.18c)
Date: Sat, 12 Dec 1992 17:13:10 +0000


In article <1992Dec10.162703.1015@kadsma.kodak.com>
            pajerek@telstar.kodak.com writes:

>In article <Bz0F48.FuE@usenet.ucs.indiana.edu> jwales@silver.ucs.indiana.edu
> (jimmy donal wales) writes:
>>I've seen a particular kind of argument here lately, which purports to
>>show that economics is not a science, or is not a scientific discipline.
>>While I do think that that point is open to some debate, I just want to
>>point out that the particular kind of argument I have seen here is not
>>valid.
>
>I agree that a 'science' need not be able to *predict*, but it must
>always be able to *explain*. Peter may not accept this. He often
>insists on the 'predictive value' of the hard sciences, and either
>states or strongly implies that a body of theory that can't produce
>reliable predictions is 'not science'.

No, no, NO!  Science does *not* explain, for instance, *how* gravity
works.  It *predicts* that it will work, and the success of the theory
is based on how well its predictions match observations.

The scientific method is:

a)  observe facts
b)  correlate observations
c)  deduce theories which fit the observations
c)  predict new tests from the theories

and repeat as necessary.

So we observe that things move towards one another, correlate those
observations to find in what way they move, deduce a theory which fits
those observations, and then predict future testable observations.

That is why Newton's "Laws of motion" were correct theories for a long
time, because they gave good predictions.  When the equipment advanced
so that it could be seen that there were differences between the
predictions and the observations, it had to be superceded.

The original poster claimed that the only valid theory 'predicts' that
share prices will be random.  In a way, that's a valid prediction.  But
it's not testable, because 'random' means 'unknowable'.  And it's not
usable...

A valid theory of economics should say something like "The values of the
inputs to the system are not predictable - however, given certain inputs
we predict that the system will do such-and-such".  The same as I can
say "I don't know when or if the driver of a car will slam on the
brakes, but if he does, the car will skid".  That is both usable and
testable - I can use it to design a safer car, or to warn the driver,
and I can test it when someone *does* slam on the brakes.

The trouble with the economic theory mentioned is that it is not usable
unless you have a dartboard and a copy of the Wall Street Journal (and
are able to hit the dartboard <g>).  And even then, it says that you
might just as well not bother (in fact it's better if you don't throw
the darts - you might hit the cat).  So all these financial people are
wasting their time (and our money)...

Incidentally, I wouldn't claim that the scientific method is infallible,
or the only method for arriving at 'truth'.  Certainly, it can't answer
questions about religious or moral issues, as they seem to be purely
subjective (i.e.  I know what *I* believe, but there's no way that I can
prove it to you unless you already share my basic feelings).

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