Excessive Ambitions

33 Pages Posted: 30 Jan 2013

See all articles by Jon Elster

Jon Elster

Columbia University - Department of Political Science

Abstract

The current financial crisis has brought out a fatal flaw in the foundations of the economic theories that guided economic agents and regulators: the unwarranted claim to precision and robustness. In this article I try to diagnose this flaw and discuss possible remedies. I argue that actual agents are intrinsically less sophisticated than the models assume they are, and that the various proposals to sustain the models by appealing to as-if rationality all fail. I next consider behavioral economics as an alternative to the standard models, claiming that while they may allow for successful retrodiction, they do not hold out much promise for prediction. I also discuss the use of statistical models, arguing that they are subject to so many traps and pitfalls that only a handful of elite practitioners can be trusted to use them well. Finally, I offer some speculations to explain the persistence in the economic profession and elsewhere of these useless or harmful models.

Comments on this paper can be found at: http://ssrn.com/abstract=2209391 http://ssrn.com/abstract=2209388

Suggested Citation

Elster, Jon, Excessive Ambitions. Capitalism and Society, Vol. 4, Issue 2, Article 1, 2009. Available at SSRN: https://ssrn.com/abstract=2209382

Jon Elster (Contact Author)

Columbia University - Department of Political Science ( email )

7th Floor, International Affairs Bldg.
420 W. 118th Street
New York, NY 10027
United States

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