Maps, Economic Methodology, and the Principle of Unreality (Part II)

 

I left off with the explanation of why Herbert Simon had dubbed Friedman’s main methodological thesis as “the principal of unreality”. But first, to continue our theme of very large maps, let me open with an excerpt from Sylvie and Bruno Concluded by Lewis Carroll:

 

“What a useful thing a pocket-map is!” I remarked.

“That’s another thing we’ve learned from your Nation,” said Mein Herr [an alien traveler from another planet], “map-making. But we’ve carried it much further than you. What do you consider the largest map that would be really useful?”

“About six inches to the mile.”

“Only six inches!” exclaimed Mein Herr. “We very soon got to six yards to the mile. Then we tried a hundred yards to the mile. And then came the grandest idea of all! We actually made a map of the country, on the scale of a mile to the mile!”

“Have you used it much?” I enquired.

“It has never been spread out, yet,” said Mein Herr: “the farmers objected: they said it would cover the whole country, and shut out the sunlight! So we now use the country itself, as its own map, and I assure you it does nearly as well…”  

 

As we’ve seen in Part I, Friedman argues that we need unrealistic assumptions in the premises of economic argument – lest we get unusable 1:1 maps like Mein Herr’s which he could never unfold. His assertion is that unrealistic assumptions are desirable because they allow for simplicity in the model and make the economic maps usable. In this sense, Friedman’s argues his unrealistic assumptions in economics are no different than the unrealistic assumptions Galileo made when formulating the motion of falling bodies (Friedman p.153). So it is at least conceivable that Friedman was correct to claim that unrealistic assumptions are required in an argument in order to have models of any use. All scientific arguments would therefore in some sense be invalid. However, the story of Borges’ cartographers and Mein Herrs’ alien civilization do not exonerate the principle of unreality because not all unrealistic assumptions are equal. As Simon (p.181) points out in his essay:

 

Was Galileo also guilty of using the invalid principle of unreality? I think not. I think he was interested in behavior in perfect vacuums not because there aren’t any in the real world, but because the real world sometimes sufficiently approximates them to make their postulation interesting.

 

What Simon then lays out as an improvement upon Friedman’s principle is what he calls his “principle of continuity of approximation”. It asserts that “if the conditions of the real world approximate sufficiently well the assumptions of an ideal type, the derivations from these assumptions will be approximately correct” (ibid). What is conveyed by this principle is that the more accurate our assumptions in a valid argument, the more accurate our conclusions will be.

However, “sufficiently well” is a hard term to pin down the exact meaning of, so perhaps its intuition can be best asserted through some concrete examples of what it is not, given again by Beinhocker (p.97). Here are some assumptions made in traditional economics (roughly of the sort Friedman is defending) about the way in which humans act:

  • Humans use “complex deductive calculations to make decisions”
  • They have “complete information” and therefore “make no errors and have no biases”
  • They also have no need to learn or adapt because they are already “perfect”

These assumptions are a wildly false representation of humanity, and seem quite different than imagining planets as perfect spheres, assuming a frictionless plane, or drawing a map on a smaller scale than reality. Typical economic assumptions are not simplifications of reality but complete deviations from reality. Maps can simplify, but should not distort. Likewise, all science may indeed be forced to simplify reality as Friedman argued, but good science does not appear to contradict it.

While the principle of unreality may render acceptable conclusions to guide policy makers at times (as was Friedman’s ultimate goal), it by itself does not guarantee any understanding of the underlying mechanisms which created this connection. If the inner workings of a system are unknown (or are assumed known but incorrect), then there is a real danger of missing insights that could be valuable to future predictions and knowledge. It is for this reason that philosopher Daniel Hausman stresses the importance of “looking under the hood” of a theory. We may observe that a car runs well upon a test drive, but it would be unwise not to have a mechanic still look over the engine before purchase (Hausman p.185).

To use an old metaphor of Bertrand Russell’s (found in Chalmers; p.45), imagine a turkey who upon empirical analysis concludes that he will be fed by the farmer each morning at the same time every day. Without knowing the mechanisms going on behind the scenes however, sadly the turkey will not change his predictions on Christmas morning. To put it crudely, predictions based only on conclusions of invalid arguments may work, until they don’t. If your premises are derived from assumptions that contradict reality, then if/when the predictions fail to hold, there is no way to truly understand why. Friedman’s conclusions are limited only to a superficial understanding of how the world works and this is the danger of the principal of unreality. His principle blurs the line between simplifying a map to make it more usable, and distorting the details all together. Simon’s solution to to the principle of unreality is therefore as follows:

 

The remedy for the difficulty is straightforward, although it may involve more empirical work at the level of the individual actors than most conventionally-trained economists find comfortable. Let us make the observations necessary to discover and test true propositions… then let us construct a new market theory on these firmer foundations. (Simon p.181)

 

So maybe Mein Herr was right, perhaps we should better try and use the world we live in as our map.

 

 

Works Cited:

Carroll, Louis. Sylvie and Bruno Concluded. London; New York : Macmillan and Co., 1893. 

Chalmers, A. F. What Is This Thing Called Science? Indianapolis: Hackett Pub., 1999. 

Beinhocker, Eric D. The Origin of Wealth: The Radical Remaking of Economics and What It  Means for Business and Society. Boston, MA: Harvard Business School, 2006.

Friedman, Milton. “The Methodology of Positive Economics.” 1953. The Philosophy of Economics: An Anthology. Ed. Daniel M. Hausman. 3rd ed. New York: Cambridge UP, 2007. 145-78. 

Hausman, Daniel M. “Why Look Under the Hood?” 1992. The Philosophy of Economics: An Anthology. Ed. Daniel M. Hausman. 3rd ed. New York: Cambridge UP, 2007. 183-87. 

Simon, Herbert. Testability and Approximation. 1963. The Philosophy of Economics: An Anthology. Ed. Daniel M. Hausman. 3rd ed. New York: Cambridge UP, 2007. 179-82. 

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