A less dismal science

This blog rarely strays into the behavioral sciences, and for good reasons.  Some of these reasons are outlined in an article in last week's The Economist, in a special insert, "The World If".  This particular piece ponders the scenario, What if economists reformed themselves?  One of the criticisms identified in the article is "model mania"; the author writes, "problems arise when they mistake the map for the territory."  Frankly, I think this is a criticism that applies more broadly, to any area of mathematical modeling where the contact between model and reality is very loose or non-existent.  This occurs when mathematical models are not validated by comparison with actual data; the ultimate validation regime is to predict new phenomena or future data, and compare such predictions with experimental or observational data.  Theories of physics are usually test driven in this way, as are engineering models, and many of those in data science.  Such validation is often lacking in both economics and inferential (as opposed to predictive) statistical modeling in general.  The author of the Economist piece recommends that economists repeat the mantra, "My model is a model, not the model."  DTLR advises all other users of mathematical and statistical models to do the same.

For further reading, see The Financial Modelers' Manifesto by Paul Wilmott and Emanuel Derman (2009).