Excessive Ambitions

Jon Elster, Collège de France and Columbia University Abstract The current financial crisis has brought out a fatal flaw in the foundations of the economic theories that guided economic agents and regulators: the unwarranted claim to precision and robustness. In this article I try to diagnose this flaw and discuss possible remedies. I argue that actual agents are intrinsically less sophisticated than the models assume they are, and that the various proposals to sustain the models by appealing to "as-if rationality" all fail. I next consider behavioral economics as an alternative to the standard models, claiming that while they may allow for successful retrodiction, they do not hold out much promise for prediction. I also discuss the use of statistical models, arguing that they are subject to so many traps and pitfalls that only a handful of elite practitioners can be trusted to use them well. Finally, I offer some speculations to explain the persistence in the economic profession and elsewhere of these useless or harmful models. Erratum On page 23, the third sentence of the first full paragraph currently reads: “Given an explanandum E and a hypothesis H, the scholar has to generate additional implications of E …” The text should read: “Given an explanandum E and a hypothesis H, the scholar has to generate additional implications of H …” Recommended Citation Elster, Jon (2009) "Excessive Ambitions," Capitalism and Society: Vol. 4 : Iss. 2, Article 1. DOI: 10.2202/1932-0213.1055 Available at: http://www.bepress.com/cas/vol4/iss2/art1 Discussion and Commentary Pierre-André Chiappori, Columbia University, Comment on "Excessive Ambitions" (by Jon Elster) (October 2009) David Hendry, Oxford University, Comment on "Excessive Ambitions" (by Jon Elster) (October 2009)