May 28

One of the things that always amazed me about rational economists is that they don’t update their opinions.

In economics there is a very clear way in which all people are supposed to observe new information and based on it update (what is called Bayesian Updating) their understanding of the world.  And while Bayesian Updating is a big part of economic theory, economists themselves don’t seem to do any of this Updating based on data about real economic behavior of people.

Of course, no experiment is ever perfect, and there are always more questions and alternative possible interpretations – but that rational economists would not update at all?  This is just too odd. Or maybe it is the real proof that we are all somewhat irrational?

Here is what Asimov had to say about believing in data…

“Don’t you believe in flying saucers, they ask me? Don’t you believe in telepathy? – in ancient astronauts? – in the Bermuda triangle? – in life after death?

No, I reply. No, no, no, no, and again no.

One person recently, goaded into desperation by the litany of unrelieved negation, burst out ‘Don’t you believe in anything?’

‘Yes,’ I said. ‘I believe in evidence. I believe in observation, measurement, and reasoning, confirmed by independent observers. I’ll believe anything, no matter how wild and ridiculous, if there is evidence for it. The wilder and more ridiculous something is, however, the firmer and more solid the evidence will have to be.”

Isaac Asimov, The Roving Mind (1997), 43