Frydman, Goldberg, Johansen, and Juselius – Modeling Imperfect Knowledge and Non-Routine Change

How do you model the unmodelable? By taking seriously the idea of non-routine change. Simply put, change in capitalist economies is to a significant degree non-routine, and thus cannot be adequately forecasted or represented in advance with mechanical rules and procedures. In this groundbreaking area of inquiry, four INET grantees lead the way.

Roman Frydman, Michael Goldberg, Søren Johansen, and Katarina Juselius have joined forces. Each shares how they came to study this innovative topic in economics and what it means to study imperfect knowledge and non-routine change.

They explain their work, where they construct mathematical models that explore the possibility that change and its consequences can be portrayed with qualitative and context-dependent conditions.

Squaring rigid math with fluid reality, they explore the limits of Imperfect Knowledge Economics.

Comments

0

Nice to see people doing empirical work, and I enjoyed Frydman's comment that there must be something wrong with economics if he could understand it so easily because of his physics/math background.
But..."economic data is not homogenous through time" and therefore econometrics has limited usefulness(to put it mildly). This question has been settled then?
And that economics is a natural science not a moral science? This question has also been settled?

0

I am very interested by this subject !
In 1992, I presented to teachers of MIT, 2 pillars of my researchs :
1- We must no more use money as à fundamental of economics, because money is a confusion of 3 concepts since Aristote. Thus, we make the same error as Papoo do with arithmetics. Doro, doro,Doro, for 2,3,4 and money, money,money for standard, means of exchange, means to spare.
Papoo cannot do arithmetics, we cannot do correct economics.
We must separed dimensions ; which lead to the concept of "3Dmoney" - 3 dimension money, or Intelligent money.
It leads also to a new concept of "beginance" which is the contrary of finance (in french FIN is the end .. the mission of finance was to finish transaction). In a way, it's easy to define Beginance : take all attributes of finance, and search the contrary. Finance respect nothing of sciences. Beginance respect sciences.

2- The "fair value" does not exist. It is not worth triing to find it. It is an artefact. So, let us study it and go one step above. When you see something very good, you ask the recepie. The good question is exactly the same : what are the process that lead to the perception of wealth ?
Main answer : process of structuration.

I was deeply amazed by the answer of the teacher : "Such new bases are worth two Nobel Prizes"...
Indeed, this was just the beginning of the story, which becomes stronger day after day.

i consider Economics (I call EcoBioNomics a new science compatible with the other science)as the naturel évolution of physics, life, neuros and we come to "learning life".

I will not explain here, the lack of brains, but the global result is that we are building a symbiotic intelligence which requires to respect 9 rules to work fine.

If you want to know more ... I may answer.

Good Luck

Claude PERIGAUD

0

Macroeconomics is not an unmodellable system. The opposite is true, provided the assumptions are reasonable and are designed to allow the model to become workable and practicable.

The model that I use has been chosen to cover the big picture and to be fully comprehensive so that it represents in a simplified way everything of significance that is going on in a closed system for one country. This model has 6 entities and 19 variables only.

It was based on two assumptions that are due to the nature of the subject being examined. These assumptions are that the functions are taken as aggregates and that they are idealized. This means that each of the entities adopts a small number of unique and characteristic roles that are not employed by the others, in almost every case.

The model may be seen on Google Images: DiagFuncMacroSyst.pdf

Which should be enlarged in order to read all of the names of the variables, etc. This model uses identities and the subsequent development is with technical equations, that without directly entering many behavoural assumptions or formula. Then what comes out is the behavour and this allows the claim of an unmodellable subject to be properly simulated.

0

The subject does not turn out to be as mysterious as your comment tries to imply. But it does depend greatly on what assumptions are first made. In fact in an egineering sense, which is indeed what this subject should be seen as, the assumptions are chosen to simplify the subject provided, as in the past, it is not over-simplified.

0

As an outsider and trained biologist, what I wonder is why this is ground breaking now and hasn't been common sense in economics for years. Not to be mean, but the fact that this is some revolutionary idea shows how far economics has to do to catch up

0

One could start with history. Had our bank regulators done that, they would have discovered that never ever has a major bank crisis resulted from excessive bank exposures to what was perceived as “risky”. And perhaps that could have saved us from their dumb capital requirements based on perceived risk, which now has caused our banks having obese exposures to what was perceived as not risky, like AAA securities and Greece, and anorexic exposures to what is perceived as “risky”, like small businesses and entrepreneurs.

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