Sep 27, 2011 | By

Mathematical Predictability – Hard Limits in Economics

This week the EconTalk podcast featured a discussion on whether economics, with its limited predictive capabilities, can be classified as “science”.  I found the exchange (between Alex Rosenberg and Russ Roberts) to be wide-ranging, interesting and very perceptive, but I was disappointed that both missed the mathematical dimension to the issue of predictability.

In fact, all of the disciplines they discussed, from biology, to meteorology to economics, as well as other scientific inquiries, are subject to the same limitations due to complexity.  As the number and nature of interactions in any system increase, the calculations required to predict outcomes deterministically escalates.  Eventually those calculations become infeasible, and outcomes can only be postulated as indeterminate probabilities.  Rudy Rucker theorizes that the interactions in complex natural systems are actually calculations – some of which are “irreducible” – meaning the outcomes can only be determined by doing the calculation, or letting the natural phenomena proceed to its conclusion.  John Conway’s Game of Life demonstrates that even a simple system with simple rules (e.g. cellular automata) can be irreducibly complex and impervious to prediction.

This is small comfort to scientists or economists who are trying desperately to model such complex systems.  Indeed, the stakes can be quite high.

I do take issue with Rosenberg on classifying certain disciplines as “science” on the basis of their predictive capabilities.  Meteorology is a good example.  While many improvements in weather forecasts have been possible, certain problems such as predicting where tornados will touch down or how long term climate change patterns will manifest locally, are likely to remain intractable.  Predicting behavior of economic systems is no different.

How do we solve this insoluble problem?  The simple answer is to recognize that it is not a problem, but simply the true nature of reality – one that can not be fully understood and appreciated with just the tools of science.

Summary of EconTalk podcast dated September 26, 2011: Alex Rosenberg of Duke University talks with EconTalk host Russ Roberts about the scientific nature of economics. Rosenberg, a philosopher of science talks about whether economics is a science. He surveys the changes in economics over the last 25 years–the rise of experimental economics and behavioral economics–and argues that economics has become more scientific and that economists have become more aware of flaws in economic theory. But he also argues that economics is unable to make precise predictions about the effects of various changes in policy and behavior. The conversation closes with a discussion of the role the philosophy of science can play in the evolution of economics.

One Response to “Mathematical Predictability – Hard Limits in Economics”

  1. Matthew says:

    As a Pastor and priest I’m interested in how this concept of something in nature being “irreducible” mirrors the spirital concept that the future spiritual states (good or bad) of human beings cannot be predicted. I believe that because God is outside of time and space, all the future is present to Him. However, for us finite human beings living in a world of time and space, there is no such thing as a predestined spiritual state.

    This line facinates me: “The interactions in complex natural systems are actually calculations – some of which are “irreducible” – meaning the outcomes can only be determined by doing the calculation, or letting the natural phenomena proceed to its conclusion.” I wonder how this applies to “complex SPIRITUAL systems”! Thanks for the thoughtful post.

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