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Symposium 2015

Dealing with Radical Uncertainty

The Challenge

One of Karl Popper’s key insights about human predictive capacity was that "Quite apart from the fact that we do not know the future, the future is objectively not fixed. The future is open: objectively open." But most macroeconomists and finance theorists have presumed exactly the opposite. They have increasingly come to rely on internally consistent models that fully specify in advance how market participants might alter the ways in which they make decisions and how aggregate outcomes unfold over time. Models in this spirit, such as so called "rational expectations" (RE) models have not been highly effective in predicting macroeconomic outcomes. They also do poorly at accounting for the behavior of asset prices.

What can explain these failures? Can one attribute the empirical failures to irrationality and psychological biases on the part of market participants or do they stem from economists futile efforts to make exact predictions about the consequences of rational, self-interested behavior? What if in fact market participants do not have access to rational decision-making in real-world markets, where no one can fully foresee how the economy's structure will change? Is it possible to open macroeconomics and finance models to unanticipated structural change? Is it possible that understanding the inherent limits to what economists and market participants can know about change is the key to understanding market outcomes and the consequences of alternative economic policies? Should there be a shift away from more mechanistic models of human behavior to those that allow for the importance of individual creativity and unforeseeable sociopolitical change? Policy-makers and practical decision-makers will benefit from employing these models as it will allow them to better gauge the consequences of their policy choices. What are the ways to add these insights to their toolkits of policy-makers?

This session is organized by the Institute for New Economic Thinking. 

    Solutions

    Solution
    Symposium 2015

    Robust policy-making under radical uncertainty

    Robust policy-making under radical uncertainty

    Robust policy-making under radical uncertainty

    Solution
    Symposium 2015

    Radical Uncertainty in Financial Markets

    Radical Uncertainty in Financial Markets

    Radical Uncertainty in Financial Markets

    Solution
    Symposium 2015

    Technology is forcing agents to abandon rational choice behavior

    Technology is forcing agents to abandon rational choice behavior

    Technology is forcing agents to abandon rational choice behavior

    Solution
    Symposium 2015

    We deal with uncertainty by abolishing it. But in what state of mind and with what consequences?

    We deal with uncertainty by abolishing it. But in what state of mind and with what consequences?

    We deal with uncertainty by abolishing it. But in what state of mind and with what consequences?