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Thursday, November 13, 2008

Venn diagram for economics

A = set of people who can do math and are, perhaps, sympathetic to the idea of optimizing rational agents.

B = set of people with psychological insight into human decision making and group behavior.

(A and B) = the intersection of A and B = the people who can understand markets.

A - (A and B) = autistic people who like math ; they make crazy assumptions about efficient markets.

B - (A and B) = average (non-economist) social scientist who is intimidated by math but can see economists are making crazy assumptions.

Most physicists start in A - (A and B) but have been trained to recognize when models fail to reflect reality, so they eventually migrate into (A and B). Most successful traders and hedge fund managers are in (A and B). Alan Greenspan only recently migrated there after 40 years ;-)

Related links: heterodox economics, Mirowski's Machine Dreams, intellectual honesty, confessions of an economist

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