Fundamentalists versus Realists!

Paul Romer argues that the “debate among economists about the $700 billion Paulson plan reveals a deep divide between realists and fundamentalists.”

But who are fundamentalists, and who are realists? Romer explains:

“Fundamentalists have an unswerving faith in models. Policies should always be derived from the best available model. Data should be filtered through a model. If an observation does not fit within the context of a model, it should be excluded from consideration.”
“Realists are more conscious of the limits of models and more comfortable with a division of labor between the researcher who improves the models and the clinician who makes policy decisions. They recognize that the power of models comes precisely from a commitment to abstraction that filters out potentially important complexity. They believe that useful evidence can accumulate with direct experience as well as through the research process of testing and refining models. They believe that researchers should consider the possibility that the fault lies with the model when its predictions diverge from clinical judgment and that policies should draw on both sources of evidence. “

Read the full article here.

Pointer by Mark Thoma