On the value of “basic science” in economics and other disciplines

A few months ago, Larry Summers was reported to have made some comments regarding rules of thumb he used to distinguish between useful and not-so-useful economic papers when he was working in government:

He had a fairly clear categorisation for which ones were likely to be useful: read virtually all the ones that used the words leverage, liquidity, and deflation, he said, and virtually none that used the words optimising, choice-theoretic or neoclassical (presumably in the titles or abstracts).

However, while this sounds kind of harsh, he made sure to temper his criticism by saying that some seemingly useless things of apparently limited applicability might turn out to be useful in years to come (microfoundations for macroeconomics, perhaps?).

This last caveat is one Iâ€™ve frequently encountered in two contexts: From people who want to defend basic (natural) science, and from people who want to defend some discipline in economics that is just plain wacky. The argument is the same: It might turn out to be useful in the future.

Though true in the strict sense (I canâ€™t rule out possible value coming from this research), the argument is frequently a â€œcheatâ€: I suspect that the person supporting basic science (or abstract economic theorizing) believes that this is nice and valuable intrinsically no matter what the usefulness of the results may turn out to be. But since this is a tough pitch to sell to the general public (especially for the economist), they try to say that â€œwell, this could actually turn out to be valued highly by you even if you donâ€™t care about the intrinsic value.â€ And yes, there are clear cases of (truly) useful things that came out of (seemingly) pointless and abstract theorizing. Hereâ€™s an example from the US Department of Energy:

The discovery that all matter comes in discrete bundles was at the core of forefront research on quantum mechanics in the 1920s. This knowledge did not originally appear to have much connection to the way things were built or used in daily life. In time, however, the understanding of quantum mechanics allowed us to build devices such as the transistor and the laser. Our present-day electronic world, with computers, communications networks, medical technology, and space-age materials would be utterly impossible without the quantum revolution in the understanding of matter that occurred seven decades ago. But the payoff took time, and no one envisioned the enormous economic and social outcome at the time of the original research.

However, it seems wrong (especially of an economist) to just transfer this argument from basic science (whether mathematics or theoretical physics or whatever) to economics. The reason is simple: Take two types of research. One (â€œapplied researchâ€?) is practical and will with high probability lead to valuable insights (in Â terms of practical usefulness, economic value, material benefits to humanity or whatever). The other one (â€œbasic researchâ€?) is highly abstract and divorced from empirical applications and will with high probability fail to lead to such valuable insights. However, with both of them there is uncertainty, and we can imagine some probability distribution over â€œinsight-valueâ€ that these could generate. It seems to me that unless we have reason to believe that the tail of the â€œbasic scienceâ€ distribution is fatter â€“ i.e., unless the probability of making truly mind-blowing important progress Â is higher for basic than for applied science â€“ then we should always go for the applied in so far as the pragmatic value of the insights is what we want. The expected value would be higher, and the probability of an insight of any given value would be higher with the applied research. In other words, we need a â€œfat-tailâ€ argument â€“ an argument that the distributions will differ for observations lying far away from the mean. Since discussing differences in the tails of various distributions in another context was part of what made Summers resign as President of Harvard, this is a point I think he would get easily.

My point is just that I can see the possibility of this fat-tail argument in terms of certain types of basic science, but that does not mean it is present in economics. In physics there could be some argument such as â€œthe higher the granularity and precision with which we can understand and manipulate the world around us, the more opportunities are open to us for manipulating it to our benefit,â€ and this can be supported by examples from experience. In mathematics there could be an argument that â€œthe more analytical tools for a broader array of problems, the more mathematics will be able to power up other disciplines and improve their reach and valueâ€. However, I am at a loss to see what more sophisticated representative agent-modelling in DSGE models or rational addiction models will give us. To me, such work seems more like Tolkienesque fantasy about alternate worlds. And if such fantasy about alternate probably-not-even-conceivably-realistic worlds can be useful â€“ then the question is: Which ones are most likely to be useful, and how do we tell? Why representative agents deciding with optimal control theory? Why the (apparent) bias towards non-regulation and free markets?

Also â€“ if such modeling divorced from evidence â€œcould potentiallyâ€ turn out to be useful â€“ surely it could also â€œpotentiallyâ€ turn out to be harmful? For instance, if it misled (at times influential) economists into thinking that the world is simpler than it is and that it is imperative that we implement policies derived from such rational choice fan-fiction. An anecdote that may provide a possible example: Brooksley Born apparently, according to some, pushed hard for the regulation of a booming, wild-west-frontier derivatives market. In this she was stopped by President Clintonâ€™s Working Group on Financial Markets. Alan Greenspan claimed that regulation could lead to financial turmoil, and at one point the very same Larry Summers we started with called her and said that

“You’re going to cause the worst financial crisis since the end of World War II.”… [Summers then said he had] 13 bankers in his office who informed him of this.

Funny, it doesn’t look like Kansas…

Though creationism does rear its ugly head from time to time in Europe, it is largely a fringe phenomenon. Unlike in America, even most religious Europeans accept evolution as an obvious fact, viewing the biblical creation stories (yes, there’s more than one) as, at most, poetic metaphor. So it’s easy for us over here to indulge in a superior smile when we observe the antics of those primitive American bible-thumpers.

At least in Germany, we shouldn’t be so quick to smile. Continue reading

Five Germanys I Have Known by Fritz Stern

Fritz Stern was born in what was then Breslau, Germany, grandson of Jews who converted to Christianity, son and grandson of physicians and researchers, at a time when medicine was truly becoming a science and Germany was leading the way. His godfather and namesake was Fritz Haber, who discovered how to fix atmospheric nitrogen, won a Nobel, led research into poinson gas as a weapon, and died shortly after his forced emigration from Germany.

Stern emigrated with his family to the United States in late 1938, in the proverbial nick of time. He rejected Einstein’s advice to stay in the family business of medicine and became a distinguished historian of Germany and Europe. Along the way, he also became an active participant in transatlantic relations, always retaining his liberal perspective.
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How Reliable is Wikipedia?

Well, pretty damn reliable apparently. Or at least that is the view expressed by the scientific journal Nature who have just carried out the first peer based comparative review of Wikipedia and Encyclopaedia Britannica in terms of their science coverage. Clearly cases like the Seigenthaler one are the exception rather than the rule, and Britannica itself is not without its problems since of the eight “serious errors” reviewers found – including misinterpretations of important concepts – four came from each source, the journal reported. Maybe people should be thanking John Seigenthaler for raising Wikipedia’s profile. Well done Wikipedia.

One of the extraordinary stories of the Internet age is that of Wikipedia, a free online encyclopaedia that anyone can edit. This radical and rapidly growing publication, which includes close to 4 million entries, is now a much-used resource. But it is also controversial: if anyone can edit entries, how do users know if Wikipedia is as accurate as established sources such as Encyclopaedia Britannica?

…..an expert-led investigation carried out by Nature â€” the first to use peer review to compare Wikipedia and Britannica’s coverage of science â€” suggests that such high-profile examples are the exception rather than the rule.


fact and value, truth and knowledge

I would like to comment on an excerpt of a comment by Mike

“We might distinguish questions of fact (e.g. “which way will John vote at the next election?”) from questions of value (e.g. “is Blair’s outlook better than Brown’s?) by noting that the answers to factual questions may be true or false, but that the answers to value questions must always depend on and presuppose a point of view or value. Answers to factual questions do not presuppose a point of view or value – they presuppose the categories of true and false and must be framed in those terms (either we are correct in predicting that John will vote for X or, if he votes for Y we will have been shown to be incorrect).”

I think it will be important to define the word “knwledge” right now. I use “knowldge” to mean “justified true belief”. If we happen to guess right, we do not know. I will place great stress on the word “justified” in that definition.

OK back to the quote “answers to value questions must always depend on and presuppose a point of view or value” is implied by”answers to value questions must always depend on and presuppose a value”. In this post I will assume for the sake of argument that the stronger claim is true so answers to value questions must always depend on and presuppose a value. How does this make them different from claims of fact ?
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Hobbits among us

It seems the big science news today is the discovery of a new species of homind in a dig on Flores Island in Indonesia. Homo floresiensis, who apparently was about a metre tall apparently lived as recently as 13,000 years ago – much more recently than any known homnid other than humans, and there is already speculation that they survived much more recently. It seems that some people on Flores still tell stories of little people who lived in caves at the time of the arrival of the Dutch 400 years ago. This leads one to speculate that the less well expored areas of Flores, and perhaps other islands in eastern Indonesia, may still hold pockets of little people.

BBC is already calling them “hobbits”.
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