A Constructive Critique of Economic Modeling

This research project argues that economics currently lacks the capability to assess when mathematical modeling, on its own, is a sufficient means for understanding a given set of social phenomena.

The mathematical methodology of economics has proven to be a powerful tool for understanding certain aspects of the economy, but it has also proven to be susceptible to unanticipated and substantial failures, e.g., the failure to predict and adequately understand the recent financial crisis. This project explores the root causes of such failures and proposes a reform agenda to make them less likely going forward. Through both theory and detailed exploration of examples, including that of the recent financial crisis, this project demonstrates that economists must acquire a fine-grained understanding of the social phenomena under study before modeling them mathematically, or they risk producing models that are misleading in ways that may not become apparent until a crisis reveals them. Methods for acquiring the necessary type of fine-grained understanding are already in use in other social sciences and could straightforwardly be adapted for use in economics in much the same way that Econometrics adapted the methods of Probability and Statistics.