Abstract
We have seen how complex and sophisticated these two bodies of theory are, but that does not tell us much about how good they are. Certainly they pass the test of using serious mathematics, but that’s really an aesthetic criterion and internal to the theoretical process. So we turn to the relation of these theories to the outside world, with applicability, range, and power as the criteria for judging them.
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Notes
David Halliday, Robert Resnick, and Jearl Walker, Fundamentals of Physics (New York: Wiley, 2005), 1230–31, describe the prediction of the existence of as well as key properties of an unknown particle based on mathematical symmetries (informally called the Eightfold Way) in quantum theory. A team of applied physicists then used those properties to seek out examples of the particle. They succeeded.
This is a common complaint by the quants who came to finance from physics. See, for example, Emanuel Derman, My Life as a Quant (New York: Wiley, 2004)
and Scott Patterson The Quants (New York: Crown Business, 2010) Kindle ed.
The best account I know of the macroeconomic forecasting process by a leading forecaster is Edward Leamer, Macroeconomic Patterns & Stories, A Guide for MBA’s (New York: Springer, 2010). More specific comments on economic prediction occur in Chapters 5, 7, and 15 in this book.
David Romer, Advanced Macroeconomics, 3rd ed. (New York: McGraw-Hill, 2007) offers a balanced appraisal of the views. He believes, and I agree, that the most extreme views have almost disappeared, though there is still wide disagreement. As we will see, even the extreme views should not be totally dismissed. Chapter 3
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© 2016 Benjamin Ward
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Ward, B. (2016). Physics and Economics—A Performance Comparo . In: Dionysian Economics. Palgrave Macmillan, New York. https://doi.org/10.1057/9781137597366_3
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DOI: https://doi.org/10.1057/9781137597366_3
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