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Academic debate

Professor Lex Hoogduin and Professor Harry Garretsen debate about the implications of uncertainty on scienct, the economy and society.
Uncertainty is inescapable. I agree, uncertainty is really a fact of life. Many of our decisions, certainly long term decisions, like buying a house, or taking under real uncertainty in other risks. That’s true. But it’s unbelievable that this is not taken into account in many models of the economy, and many models of society, because this fact really needs another approach. Another approach to economics. There, I unfortunately disagree with you, because I think it’s completely understandable why, even though while we acknowledge that uncertainty is important, that in scientific analysis we have difficulty with dealing with uncertainty.
Because if one allows for true uncertainty, one often hears rightly, I think, that anything might go and there’s no need for models anymore or predictions become impossible. So it seems at odds with scientific analysis. That I find really unbelievable and illogical, to be honest. You agree that uncertainty is a fact of life. So that means that people in the past had to deal with it, have to deal with it now, and will have to do with it in the future. Yes, religion is also a fact of life, but it’s not scientific maybe. So I think there are many things in life which are not scientific necessarily.
So acknowledging that it is important is one thing, dealing with it in an academic way is really a challenge, I think. No, but you make not a distinction out of it. You forget that there’s a difference between a religion, for instance, and uncertainty, and studying how people deal with it to understand how people deal with uncertainty. This can’t be– it’s liable to a scientific analysis. You can apply scientific methods to that. OK, but I think the main obstacle to dealing with it, I think is, that once you say can one still make predictions, and certainly in economics predictions, as you know, are very important, they exist.
So the fear is that once one allows for fundamental uncertainty, not risk, fundamental uncertainty, that predictions become impossible, Well, that’s true, many predictions will not be possible, and that’s one of the major mistakes I would say in modern social theories, in economics in particular. That we have the pretence to be able to predict in broader, great detail, but economics is not like physics, for instance. You cannot predict in great detail, but that does not mean that you cannot try to understand how people behave under uncertainty. Can you give me an example, how then, you come to understanding without being able to make predictions? Well, there are many, many examples.
So let’s take one from economics and one from soccer, for instance. I said, well it’s impossible to make a very precise prediction, but you can understand, you can analyse, you can describe patterns. For instance, in economics we know that we have business cycles. So that we have fluctuations over time, and you can have a theory that generates such fluctuations, but it is impossible to precisely predict the specific course of a cycle. And now my example– -It’s overwhelming, yes? —of soccer. Soccer, or something similar, that’s a game between 11 players on both sides and it’s very difficult to predict what will happen in any second of that game, not difficult, that’s impossible.
But you know, you immediately recognise whether this is a game of soccer or whether, let’s say a baseball game, for instance in a soccer game you have one player, the keeper, that’s allowed to take the ball in his hands. You will immediately recognise that. -Yes, I agree that’s a pattern, but still going back to the business cycles, and the first example you gave, everyday predictions. We still use models so some how these models have value and we attach value to them. So we make predictions, even though uncertainty exists, or I would still say that these models somehow have to be useful because we continue to use them.
-Well I think that in the past what we have done is to give too much attention to models, as it were, and to pretend that these models really described reality were a kind of an objective truth, but it is true that, as I said, we have to deal with uncertainty since mankind existed. And one of the things that we have developed is indeed using models and making forecasts and using risk management. My problem is that we have given too much attention to that and that we almost need [? length ?] that there are other ways of looking and dealing with uncertainty.
-So if I may try to summarise what you said, models are still useful, but we have to understand that in a world of uncertainty the usefulness of some model is different than making or assuming that you can make an accurate prediction of the future. -That’s right, and it’s very important that we look also at other methods that people and other things that people have developed to deal with that uncertainty, like developing conventions, heuristics, trial and error method, evolution, ethics, the moral systems, and all kinds of other things. So you need a multi-disciplinary approach.
-There I tend to agree and because I think debate once one allows for uncertainty, as we both agree that is important, even though we differ as to what extent models can be used. I think where we meet is that debate is necessary because one constantly has to convince each other of the arguments how to deal with uncertainty. So in that sense, I think it certainly not only exists, but it requires debate, like we just did.
In this is an academic debate Professor Lex Hoogduin and Professor Harry Garretsen will discuss the implications of uncertainty for science and specifically economics.
They take different positions on the implications of uncertainty for science, the economy, the financial system and society. Does uncertainty exist? Can we make predictions about the future? Can we still use predictive models?
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Decision Making in a Complex and Uncertain World

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