A nobel and quotable scholar
Great quotes from Daniel Kahneman. Very worthwhile clicking through and skimming over.
Many people now say they knew a financial crisis was coming, but they didn’t really. After a crisis we tell ourselves we understand why it happened and maintain the illusion that the world is understandable. In fact, we should accept the world is incomprehensible much of the time.
Knew you would pick that quote – it is beautiful.
This is why I like the narrative version of economics, we are just trying to tell compelling stories, ex-post, about the elements we can measure and make some sense of. I find that McCloskey description of good economics as history now – but I think if that is the case, it might be useful for the discipline to play around with some of the methods of historians for a little bit.
Ross Gittins should read that article. And one of us should post that McCloskey piece 🙂
@Matt. I’ll leave this here [pdf]. If 12 individuals separately publish predictions of a housing related financial crisis, including timing, before it occurs, and all 12 use an accounting-balance sheet macro framework (2 pure Austrians the rest mostly Post-Keynesian), as opposed to a equilibrium framework used in more mainstream economics, and these 12 predictions are subsequently shown to be correct, does this:
a) count as understanding the financial crisis? Is Kahneman (or are you interpreting Kahneman as) referring to people who are ex-post rationalising without publishing anything prior, or to the people such as the 12 in the link. Should we conflate the two?
b) mean that “the state of macro is good” [link]. These individuals merely got lucky. The fact that their models share commonalities that the standard models lack is a coincidence! There is no need to replace or even question the role of equilibrium models. Even when these models are then used to justify policies that benefit bankers rather than ordinary folk. 🙂
I didn’t pick the crisis. Actually, I’d kinda given up on crisis; I’d taken the Austrian stuff pretty seriously. Then, year after year, things just failed to collapse. So I updated to that it just wasn’t gonna. And then it did.