Categories:
Economic Methods
Finance: stocks, options, etc.
Russ Roberts talks with Nassim Taleb. I was most interested in the latter third of the conversation, where Taleb talks about his radical empiricism. For example, he argues that medicine makes more progress with trial-and-error than with knowledge of biological processes.
Although I found that statement too extreme, I think that his general concern is valid. That is, our knowledge is limited, and yet we must make decisions. The challenge is to make decisions that are not costly given our limited knowledge.
It’s a very stimulating discussion.
READER COMMENTS
adina
Mar 23 2009 at 11:40am
Trial and error would require taking a drug already known to be ineffective, adding a methyl group, testing the new molecule on a statistically significant number of patients, and then methylating again, until we’ve tested infinite permutations of “little-value-added” functional groups. We’d be bored sick.
One of the reasons why many empiricists object to all the funding that goes into certain alternative medicine projects, such as magnet therapy or reiki, is that, based on our understanding of physiological or biochemical principles, the pre-test probability of such treatments being effective is pretty low. An extreme Popperian would object, insisting that we can’t truly know if anything works, before testing it, (and once experiment concludes, we still couldn’t be sure). Such agents of uncertainty would be technically correct.
However, science does not mean admitting omniscience nor capitulating to any smidgen of doubt. Science involves taking the information that lies before us, determining what phenomenon is most likely, and using these findings to develop a testable hypothesis. We are occasionally lucky enough to discover a drug whose mechanism of action we do not fully understand (such as in the case of Topirimate for epilepsy, or the prevalent use of beta-blockers of hypertension, long before we knew how it worked). Yet relying on lucky breaks, or “trial and error,” rather than “hot on the trail” paths gleaned from discoveries in biology, is like searching for a bank robber by starting with the As in the phone book. Or like seeking out a black swan, and beginning the expedition at a local Los Angeles lake.
Les
Mar 23 2009 at 11:43am
I think the analogy of medicine with the economic situation may be apt. But we should remember:
a) That medical experimentation is only proper within bounds – for example, it would not be ethical to infect subjects with anthrax in order to test a possible vaccine against anthrax. By the same token, economic experimentation should not make us worse off to test an economic hypothesis.
b) The Hippocratic oath says “First, do no harm … ” Economic experimentation should also bear this wise exhortation in mind.
Greg Ransom
Mar 23 2009 at 12:32pm
Larry Wright and Thomas Kuhn and Friedrich Hayek and Michael Polanyi and Karl Popper and Ludwig Wittgenstein explain why most knowledge consists in understanding gained through imitation, training, trial & error, and practice, and that this sort of understanding is prior to and primary over the formalization and manipulation of our understanding within symbols.
This is a profoundly important point, lost on most academics.
Greg Ransom
Mar 23 2009 at 2:12pm
If you’ve studied philosophy, you know that “radical empiricism” is the wrong way to describe what Taleb is talking about.
“Radical empiricism” = sense data, logical atomism, crude positivism, sensationism, associationalism, Mach, Hume, Russell, etc. In other words it’s the opposite of what Taleb is talking about
Hugo Pottisch
Mar 23 2009 at 9:32pm
Oh.. everybody hated the ancient Greeks for their balance of thinking and observing. Today we have the East (inward) and the west (outward) – but no balance… We are New Romans and not New Athenians after all.
Teresa Lo
Mar 23 2009 at 10:10pm
I guess Taleb will no longer need to criticize efforts to sort out the financial system then; after all, it’s “trial and error.”
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