Confidence and the Wrong Map
Over at econtalk, Russ Roberts interviews Daron Acemoglu. Self-recommending, as Tyler would say.
Also, here is a video featuring Daniel Kahneman and Nassim Taleb. Taleb, like me, wants to get rid of risk-taking by banks, and leave non-insured institutions free to take whatever risks they want, as long as they are not creating risks for others. His solution is to nationalize banks. (me: why would this mean that they would not take risks? Suppose that Freddie Mac and Fannie Mae had been fully nationalized as of three years ago. Would they have taken more risk or less risk?)
Kahneman tells a story of Swiss army men who got lost in blizzard in the Alps. When they finally find their way back, they are asked, “How did you find your way?” They say, “We had a map.” But the map is of the Pyrenees! Kahneman’s point is that people have a lot more confidence if they have maps, even if those maps are wrong.
Taleb does not explicitly dispute this point, but he clearly does not like the notion. It would imply that you want a doctor to think he is correct, even if he is wrong, because the doctor is giving you a map. Taleb says that religion succeeded because when people had faith, they stayed away from doctors, who were wrong. (He makes those sorts of comments a lot, as you know.) He wants business schools to stop giving students the “map” of financial modeling, because he thinks those models are wrong.
In my Lost History of Macroeconometrics, I say that macroeconometrics tries to satisfy the need for a map, but it does not provide a reliable map. But I am in the same position as Taleb. People want to believe in a map, so telling them they have the wrong map is not going to get me very far.
Finally, a reminder that on Tuesday, February 10, I will be speaking here. If they don’t record it, I’ll try to remember what I said. (I try not to use notes or a text. Instead, I prepare by practicing while I walk. These days, if you’re talking to yourself while walking, people just assume you are on the phone, so they don’t even look at you funny.)