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Machine Learning Could Solve Economists' Math Problem

Posted by Soulskill on from the how-to-make-machines-rich dept.

An anonymous reader writes: Noah Smith argues that the field of economics frequently uses math in an unhealthy way. He says many economists don't use math as a tool to describe reality, but rather as an abstract foundation for whatever theory they've come up with. A possible solution to this, he says, is machine learning: "In other words, econ is now a rogue branch of applied math. Developed without access to good data, it evolved different scientific values and conventions. But this is changing fast, as information technology and the computer revolution have furnished economists with mountains of data. As a result, empirical analysis is coming to dominate econ. ... [Two economists pushing this change] stated that machine learning techniques emphasized causality less than traditional economic statistical techniques, or what's usually known as econometrics. In other words, machine learning is more about forecasting than about understanding the effects of policy. That would make the techniques less interesting to many economists, who are usually more concerned about giving policy recommendations than in making forecasts."

8 of 157 comments (clear)

  1. Ideology not reality ... by gstoddart · · Score: 5, Interesting

    Let's be clear: how you think economics is defined by your ideology, and most economics is bad math with unfounded assumptions arriving at un-supportable conclusions.

    So, if you're the Chinese government and think you can manipulate markets to suit your beliefs, you'll be horribly mistaken. Likewise, if you subscribe to the ridiculous Austrian School of economics (which refuses to have empirical evidence), then you likewise believe your theory is so perfect it doesn't need to be validated.

    Nobody has ever had any proof for "trickle down economics" other than they think it should work and it suits their ideology, but 30 years of actual real world data mostly shows it's utterly failed to work as planned.

    Economics is useful to look at what came before, and understand some limited problems ... but in general many people believe once you try to use that to predict things, or influence outcomes you get into a level of complete bullshit and voodoo. Time and time again when people try to take action or set policy based on economics, it fails utterly.

    And until economics is based on anything other than sketchy math and ideology, it can never be a real science or have much more meaning than something people use to defend their ideology. But since people never look at economics separated from their ideology, it will never happen.

    Economics is mostly a tool to make it look like the things you believe should happen, based on how you want the system to behave, have any actual relationship with the outcomes you expect to achieve with policy. The problem is that is a lie.

    But it sure as hell can't be called an objective science. First you have to believe in the ideology and then you believe in the methodology.

    The problem is people like to believe that the ideology is objective reality, and that their observations are in fact rules. And that simply isn't true.

    --
    Lost at C:>. Found at C.
    1. Re:Ideology not reality ... by NecroPuppy · · Score: 1, Interesting

      Where do you clowns come from, really? You obviously know NOTHING about Austrian economics, yet you're all out here like ventriloquist dummies telling the world how bad it is. It's like the Red Scare with everybody talking about how bad commies were, but nobody knew anything about them other than what the establishment had told them.

      I'm sure you pray at the temple of Keynes, like all the other "Nobel prize" winning economists do. You know, those same ones whose policies have ruined the economies we have now. But we'll just ignore that, right?

      Ok, little AC, I'll reply.

      Austrian economics is, at best, a pseudoscience, and at worst, fabulist storytelling by one charlatan to another, in an effort to explain things that they either don't understand, or actively refuse to understand, because they say "we don't need math or empirical testing".

      Austrian econ uses praxeology (application of deductive reasoning, applied to a set of "unquestionable" axioms) to generate its further generate implications, scenarios, and results. Of course, these unquestionable axioms are quite questionable - they take them as blind faith, "because we've said them, they must be true". Often in there, they reject formal logical analysis of their axioms, instead choosing to use verbal analysis, because it's easier to weasel word your way out of corners. (Fingers are often inserted in to the ears of young Austrian economists at this point, as they say, "la la la la, I can't hear you".)

      Then there's their use of the Austrian Business Cycle Theory, which uses many terms that they've mis-defined (they change the meanings of words to be whatever they want, so when they misuse them, they can say "You just don't understand"), such as "inflation" and "natural rate".

      ABCT ultimately is better at explaining why the Austrians and libertarians are such hardcore goldbugs and why they rail against the Fed so much than it is at explaining actual business cycles.

      The Austrians get around the problems of market failures, natural monopolies, morality, and rationality through the use of clever wordplay. They rely on an extreme form of methodological individualism based on the "action axiom" as described above. To wit: Because only individuals exist, only individuals can act. Societies cannot act because, to quote Margaret Thatcher, "there is no such thing as society." Therefore, all action can be described at the individual level. If an action is good or moral for one individual, then it must be good or moral in the aggregate because good + good = good. In reality, only basic game theory is needed in order to refute this. Austrians claim, for example, that savings represent money that will be invested in the future, and so money can never be "hoarded." They entirely reject the paradox of thrift.

      Even the hero/founder of the school admitted it was BS.

      Ludwig von Mises himself wrote of his theory: "Its statements and propositions are not derived from experience... They are not subject to verification or falsification on the ground of experience and facts."

      F.A. Hayek wrote that any theories in the social sciences can "never be verified or falsified by reference to facts." By the way, he won one of those Nobel prizes for Economics that you sneered at, for his "theory of money and economic fluctuations". That would be the last actual contribution by the Austrian school to economics as a whole, in the last 40 years.

      (Special thanks to RationalWiki for significant portions of this post.)

      --
      I like you, Stuart. You're not like everyone else, here, at Slashdot.
  2. Forecasting by PPH · · Score: 3, Interesting

    machine learning is more about forecasting than about understanding the effects of policy

    And forecasting depends on some underlying behavioral model. Problem is, people keep changing the model. They try to anticipate or short markets to gain an advantage and very rapidly, this new response to market conditions replaces the previous behavior, invalidating previous relationships.

    --
    Have gnu, will travel.
  3. results, not theories by raymorris · · Score: 5, Interesting

    My understanding of the difference is that this produces somewhat testable results WITHOUT requiring a theory of how and why those effects occur.

    To give an extremely simplified example, assume that a certain coin is flipped every day. For the past 20,000 days, it has always come up heads. (Obviously not a fair coin). The machine will predict that it will probably come up heads tomorrow. Traditional economic theory will try to understand WHY it keeps coming up heads before making predictions. That's the first difference.

    The requirement for a theory that explains how and why economic effects occur also means that the theory is subject to subject to be supported or decried based on political considerations or other irrelevant factors. A system which accurately predicts what will happen without comment on politically sensitive policy questions may be useful.

  4. Economics isnt science. by nimbius · · Score: 4, Interesting
    Sorry for the economics majors in the room, but you're not dealing with scientific constraints in the concept of modern hyperconsumer capitalism.

    economists don't use math as a tool to describe reality

    They can't. economic realities predicated upon hysteresis or long term analytical trends are constructed with touchstones of bogus equations founded on wild conjecture. a sizeable component of many modern economies are unquantifiable, having been intentionally obscured by human interest. Why did the fed hold reserve rates? what is the nature of a cyclical economy when infused with more than one trillion dollars of emergency funding to prevent an uncodifiable collapse? what factor or theorem transmogrifies and determines the value of liabilites as assets? So much of what economics seeks to do is undermined by the fact that most economies work by the rules of human nature. the Federal reserve practically has its own language to communicate change or lack thereof, and it is intentionally designed to avoid concrete resolution or effable transmission of meaningful information.

    Marx as an economist is one of the few to provide a very broad overview of the concept as it applies to modern capitalism. he describes the capitalist economy as a cycle similar to a bird with a broken wing. it builds, booms, collapses and in turn affords a widely acceptable cycle of observed failure. From the great depression to the lincoln savings and loan scandal to the United States Failed leveraged buyout of United Airlines to the dotcom bubble and finally the great recession of 2007 we've all grown to accept this cycle as normative.

    --
    Good people go to bed earlier.
    1. Re:Economics isnt science. by Intrepid+imaginaut · · Score: 4, Interesting

      Marx as an economist is one of the few to provide a very broad overview of the concept as it applies to modern capitalism.

      Marx was a drunken idiot whose economic "theories" didn't have so much as a means to correctly communicate value. Booms and busts happen when powerful players in the market spot a way to sidestep regulation, whether because the phenomenon was new as with the dot bomb, or because regulation was deliberately removed as with Glass-Steagall which led directly to the most recent recession.

      Still though, the fact that every country which embraces regulated capitalism has experienced a steady improvement in standards of living and wealth would have stuck in old Karl's craw.

    2. Re:Economics isnt science. by DigiShaman · · Score: 3, Interesting

      Well yes, as someone else once put it, Marx was astute diagnostician, but an absolute horrible clinician. Meaning that Marx did well to point out the problem, but his proposed cure was far worse than the ailment he tried to treat in the first place.

      --
      Life is not for the lazy.
  5. Re:Economics IS a science by Anonymous Coward · · Score: 0, Interesting

    Economics is not a science, no matter how many times you and your finance buddies tell yourselves that it is. That's not a real Nobel prize either, it's a self-aggrandizing fraud that was purchased by the banking industry in an attempt to convince the public that their twisted methods were legitimate and not just common crime.