Now that some of the commotion and excitement over this year's Economics Nobel Prize has died down a little, an informal chat with co-winner Lars Peter Hansen is definitely in order.
So, a hat-tip to Mark Thoma for alerting me to this interview of Hansen by Jeff Sommer in the New York Times, today. Jeff manages to get a comment about efficient markets from his interviewee.
And here's a comment that all students of econometrics should take to heart:
"The thing to remember about models is they’re always approximations and they will always turn out to be wrong at some point. When someone says all the models that economists use are wrong, well, in a sense that’s true. But you need to ask, are the models wrong in ways that are central to the questions, or are they wrong in ways that aren’t so central?
And so part of the task of statistical analysis is to look at models and try to figure out what the gaps are so that people will build better models in the future."
© 2013, David E. Giles
I understand the position that "all models are wrong. Some are useful." However, being trained as an economist and not a statistician, it still strikes me as a somewhat trite, dismissive attitude toward theory. Yes, a theoretical model is just an approximation toward reality. But before someone can say a model is wrong, maybe they should have to try and come up with a better model. Said differently, let's see you come up with a better model. The statement is true but still irks me in some ways.
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