Fallibility in formal macroeconomics and finance theory

Roman Frydman and Michael D. Goldberg

Journal of Economic Methodology, 2013, vol. 20, issue 4, 386-396

Abstract: This note focuses on George Soros's challenge to macroeconomics and finance theory that any valid methodology of social science must explicitly recognize fallibility in a Knightian sense. We use a simple algebraic example to sketch how extant models formalize fallibility. We argue that contemporary theory's epistemological and empirical difficulties can be traced to assuming away fallibility in a Knightian sense. We also discuss how imperfect knowledge economics provides a way to open mathematical models to such fallibility, while preserving economics as an empirical science.

Date: 2013
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DOI: 10.1080/1350178X.2013.859425

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