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  5. Economics as a Socially Relevant Science: Methodological Perspectives and Concerns
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Economics as a Socially Relevant Science: Methodological Perspectives and Concerns

Paper Session

Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)

Marriott Rivercenter, Conference Room 11
Hosted By: International Network for Economic Method
  • Chair: Luis Mireles-Flores, University of Helsinki

Not Only AI: Rethinking the Epistemic Role of Computer Technology in Modern Economics

Magdalena Małecka
,
Aarhus University

Abstract

The contemporary hype around artificial intelligence has not escaped economics. We witness increasing interest in the advancements in machine learning among economists who believe that AI tools will improve empirical analysis and evidential basis of modern economics, a proposal that follows earlier similar attempts of behavioural and experimental economists (Mullainathan & Spiess 2017). However, there is an important fact missing in these debates and proposals for a reform of economic research: since its modern development in the mid-20th century, economics has largely been influenced by computer technology.
We learn from historians of economic thought and historians of science that the neoclassical economic approaches were advanced during the Cold War era in the US by scholars who worked in research environments supported by military agencies (Erickson et al. 2013). Digital computers were built in these research environments and new sciences, inspired by the emergence of information technologies, were thriving there: cybernetics, cognitive psychology, systems engineering, AI research (Pickering 1995). Economics was not immune to the transformation by the computer that most modern science underwent. The philosophical significance of these developments, however, remains understudied. For instance, there is only a limited attention paid in philosophy of economics to computer simulations in economic research (Reiss 2011, Lehtinen & Kuorikoski 2021).
The aim of my talk is to argue for the importance of a much deeper and extensive philosophical analysis of the epistemic importance of computer technology in producing research in modern economics. Since the topic is vast, I narrow down my focus to the analysis of the epistemological consequences of the links between the computer and important theories of modern economics: expected utility theory and prospect theory. I analyse in which way idealizations of these theories reflect computational constraints of computer technology and I elaborate on the philosophical implications of this analysis.

Finding Factors in Asset Pricing

Melissa Vergara-Fernández
,
University of Groningen
Marta Szymanowska
,
Erasmus University Rotterdam
Conrad Heilmann
,
Erasmus University Rotterdam

Abstract

Currently, there is concern among some financial economists about the unprecedented number of factors—i.e., determinants of expected returns—that the literature has discovered (Harvey and Liu 2019; Harvey 2017; Ross 2017). In particular, Harvey (2017) has suggested most of these discoveries are likely false; the outcome of substandard statistical practice. To avoid identifying spurious as true factors, Harvey argues more stringent statistical methods are needed. Otherwise, the discipline risks running the same fate of those going through a replication crisis.
In this article we argue that, while there is little to quarrel with Harvey about more stringent statistical methods, data alone seems unable to adjudicate what a true factor is. We take the cases of two factors, namely momentum and market risk, to show that financial economists attribute more weight to theory when it comes to establishing what true factors are. In the case of momentum, the finding is empirically robust across different assets and markets. Yet, because this factor is not explained by the dominant theory, there is apprehension about its validity (Asness et al. 2014). Lack of a dominant theory trumps the data. In the case of market risk, there are significant empirical disconfirmations about the ability of this factor to explain expected returns. Yet, since it is a factor identified by the dominant theory, it remains to be acknowledged as a significant factor and is used for practical decisions. The dominance of the theory trumps the data, again.
The upshot is twofold. First, the attempt to adjudicate true factors by data alone is counter to standard practice in financial economics. This raises questions about the effectiveness of Harvey’s empirical ambitions. Second, identifying what true factors in asset pricing are, involves acknowledging the specific weights theory and data have and substantive criteria that motivate their weights

A Decolonial Perspective on Philosophy and Economics

Luis Mireles-Flores
,
University of Helsinki

Abstract

Economics has been criticised for not being diverse enough in relation to several dimensions: gender, race, geopolitical backgrounds, but also in relation to its epistemic approach. As is well known, there is one particular approach, the neoclassical, which is clearly disproportionally dominating over alternative economic approaches, e.g., Marxist, post-Keynesian, Austrian, feminist, institutional, ecological, and so on (Harvey 2020). Philosophy of economics has somewhat inadvertently followed on the same steps. Firstly, the structure of the discipline has been mapped upon the traditional positive/normative distinction in relation to the classification of research topics (Hausman 2021). Secondly, philosophy of economics also seems to have inherited from economics a disproportional tendency to focus on micro-level economic analysis and on mainstream (neoclassical) economic theories (Mireles-Flores and Nagatsu 2022).
The main aim of this article will be to analyse the current thematic trends in philosophy of economics using a decolonial approach. I will show how a clear and balanced characterization of a decolonizing-epistemological perspective could be useful (and recommendable) to better understand the current diversity (or lack thereof) in the philosophy of economics. The working hypothesis is that similarly to economic theory, philosophy of economics has tended to focus on certain topics instead of on others, because (similarly to economic theories) it has been affected by the context in which it has been produced, i.e., the Global North.
A decolonial approach does not simply mean providing historical context or boldly (and unreflectively) rejecting the hegemonic views, but rather acknowledging that theories from outside the dominant mainstream can provide fruitful starting points for research as well (Santos 2018; Mignolo and Walsh 2018; Kvangraven and Kesar 2022). I will show how the epistemological awareness promoted by the decolonial perspective can help us understand and hopefully redirect the current not-so-diverse trends in economics and in philosophy of economics.

Discussant(s)
Melissa Vergara-Fernández
,
University of Groningen
Luis Mireles-Flores
,
University of Helsinki
Magdalena Małecka
,
Aarhus University
JEL Classifications
  • B4 - Economic Methodology
  • I3 - Welfare, Well-Being, and Poverty