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What Should Economists Dream Of?

Isaiah Berlin wrote a famous essay called “The Hedgehog and the Fox” based on the Greek aphorism “The fox knows many things, but the hedgehog knows one big thing”. Berlin’s essay then classified writers as hedgehogs/deep or foxes/tricky.

Freeman Dyson wrote an article a few years ago in which he classified mathematicians as frogs or birds. He is not referring to English slang for Frenchman and young women. Frogs like grubbing around in the details with no overarching view of the field (but that’s OK by Dyson, who declares himself a frog) and birds like flying on high and contributing to the scope of the field.

I have been skimming the latest issue of the Economist on the crisis in economics, and from a grumpy point of view you could argue that the trouble is that in the mathematical side of economics the birds are interesting but wrong and the frogs correct but their details don’t make for a discipline.

The Brownian-motion-continuous-hedging-no-arbitrage birds have a beautiful schema that they see as fly on high, but it isn’t quite right. In the Economist Scholes explains that it’s the model users and the data that are the problem, not the models. I don’t totally disagree but that doesn’t altogether help.

The behavioral finance frogs find interesting insects, and have great stories to tell but they can’t explain the whole world beneath the heavens.

The alternative guys stress biological analogies and want to be birds but so far it seems to be all analogy and storytelling.

(On the scientific side, I heard an interesting preliminary talk at the Quant Congress by Lisa Borland on the econophysics/phase-transition approach to contagion.)

The Economist mentions Andy Lo’s idea of creating a National Financial Safety Board, like the National Transportation Safety Board that investigates airline accidents. It sounds like a good idea and can’t do much harm, but I suspect it is based on a flawed view of economic systems as engineered and therefore easy to systematically diagnose and pinpoint, rather than as a part of society, politics and power in which the historical truth is hard to discover. (The International Safety Board to investigate the causes of World War I is still deliberating.)

Maybe everyone just expects too much from economics. It’s not rocket science. It’s more a question of what defines sensible and decent behavior, and then devising incentives to get people to behave accordingly.


Meanwhile, in Sunday’s New York Times, Tom Wolfe writes about NASA’s lack of vision during the past 40 years after the moon landing:

“What NASA needs now is the power of the Word. On Darwin?s tongue, the Word created a revolutionary and now well-nigh universal conception of the nature of human beings, or, rather, human beasts. On Freud?s tongue, the Word means that at this very moment there are probably several million orgasms occurring that would not have occurred had Freud never lived. Even the fact that he is proved to be a quack has not diminished the power of his Word.”

According to Wolfe, the Word for NASA should be to build that bridge to the stars.

When you set out to be a scientist, if you’re idealistic, the Word is the nature of the universe. When you become a doctor, if you’re idealistic, the Word is empathy & helping people. All achievable.

What are the motivations of an idealistic financial economist? What is a reasonable and achievable Word for the field?

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