Applying Reason to Economics and Financial Markets

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Greek-Letter Economics

Posted on February 14, 2008

Why does economic forecasting fail so miserably from time to time? Or, more generally, why do quantitative methods in social sciences not work? Or, particularly, why do 30 years of academia not necessarily make somebody a good economist? Or, in other words, why is the normal distribution no good in economics and financial markets?F.A. Hayek has an interesting answer: In his Nobel Prize Lecture (The Pretence of Knowledge), he argues that when we deal with phenomena of organized complexity (with which we deal in the social sciences), aggregating individual actions simply does not work. Why? In c...

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economics