Fallibility in formal macroeconomics and finance theory

Roman Frydman, Michael D. Goldberg

    Research output: Contribution to journalArticle

    Abstract

    This note focuses on George Soros's challenge to macroeconomics and finance theory that any valid methodology of social science must explicitly recognize fallibility in a Knightian sense. We use a simple algebraic example to sketch how extant models formalize fallibility. We argue that contemporary theory's epistemological and empirical difficulties can be traced to assuming away fallibility in a Knightian sense. We also discuss how imperfect knowledge economics provides a way to open mathematical models to such fallibility, while preserving economics as an empirical science.

    Original languageEnglish (US)
    Pages (from-to)386-396
    Number of pages11
    JournalJournal of Economic Methodology
    Volume20
    Issue number4
    DOIs
    StatePublished - 2013

    Keywords

    • Knightian uncertainty
    • fallibility
    • imperfect knowledge economics
    • rationality

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance (miscellaneous)

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