The Lone Footballer

Friday, January 29, 2010

The Use of Frameworks in Society

The puzzling question occurred to me first when I was in 9th standard – Which area of human knowledge will make the greatest strides in future? My biased answer then was astronomy (closely followed by medicine), biased by the volumes of popular science books on astronomy at the Vikram Sarabhai Community Science Center.

The question has come back to relevance in the last couple of years in the wake of the great depression (correction/credit crunch/rough times/ period of uncertainty!?!). The two years at IIMB convinced me enough that all decision problems relating to the art of business can be solved using data and frameworks. Except that whereas in all other fields a careful application of frameworks (with complete or even partial data) gives reasonably reliable results, in the field of economics they result in colossal failures (the more sophisticated the frameworks, the bigger the errors)

I will leave aside all my knowledge of economics to understand the issue - ab initio is an amazing intellectual stimulant. So what can be the possible (and exhaustive) problems with Economics:

  1. The frameworks at use are incorrect
  2. The data processed is irrelevant
  3. Both

The present blog will focus on potential issue #2, answering the first will necessitate analyzing the frameworks, which I don’t want to do before simplifying the problem a bit.

To evaluate possible problem #2, I’ll rephrase it – In order to make it framework centric - ‘(most of) the frameworks at use are immaterial’. To answer this question one needs to answer another question. Are the frameworks developed to understand observed events or are they developed deductively (don’t want to use - a priori) and then observable facts are used as data to validate their correctness. The first approach carries the risk of being too narrow in scope – frameworks looking at the immediate observable outcomes and therefore restricting the number of factors, assuming of course that that which is not visible can not have any effect. The second approach may suffer from the creator/user bias - framework developer/user giving undue importance to certain frameworks and neglecting certain others.

I guess at this stage I have no choice but to look at the major frameworks/theories and categorize them in 1), 2a) or 2b). Meanwhile I need feedback on the process used to understand the issue with economics.

PS: This exercise is a beginning in moving beyond Austrian Economics, which as per my current understanding falls in category 2b

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