I have been working for the last few months on a book about the way people are compelled to theorize and to build models of the natural and the social world, and somehow this led me to think about Fischer Black again, even before I received an invitation to speak here tonight. Fischer is, of course, most famous for the Black-Scholes model. But Fischer understood very well the qualities of models and their limitations. Among my three favorite sentences of Fischer’s are:
- “My job, I believe, is to persuade others that my conclusions are sound. I will use an array of devices to do this: theory, stylized facts, time-series data, surveys, appeals to introspection and so on.”
- “It’s better to ‘estimate’ a model than to test it. Best of all, though, is to ‘explore’ a model.”
- “In the real world of research, conventional tests of [statistical] significance seem almost worthless.”
You can see that Fischer understood how models work and their limitations, that models are not gospel, not the world itself, but idols that we make to try to mimic it. I want to begin this evening by speaking about models and theories and the people who make them, and end up with some related thoughts about Fischer.