Comments on: It is profound and earth shaking…

By: pushmedia1

pushmedia1 — Tue, 10 Nov 2009 16:16:32 +0000

Ugh. Its times like these that make me hate Bayesians.

By: ssendam

ssendam — Tue, 10 Nov 2009 10:32:50 +0000

A Bayesian would say that our priors are also a form of data. So we should rightfully give a twinkie theory low credibility, since it is not supported by our prior beliefs on what kinds of mechanisms are plausible, and our priors are presumably generated by all the data we’ve seen in the past (if we’re rational, updating, and all that).

By: pushmedia1

pushmedia1 — Tue, 10 Nov 2009 02:24:39 +0000

If you’re going to call them the same things, yeah.

By: Gabriel

Gabriel — Tue, 10 Nov 2009 02:05:19 +0000

No, I mean your magnitudes should be consistent *across* models.

By: pushmedia1

pushmedia1 — Tue, 10 Nov 2009 01:26:47 +0000

You mean models have to be internally consistent?

To me, that’s not profound. That’s just what makes sense. If a model isn’t internally consistent then it doesn’t even provide a priori knowledge.

What’s profound is that data isn’t used to “test the model”. Data is used to see how dramatic the effects in the model are in the real world. Logic tells us how X implies Y but we can’t “test” that logic. Its just true or its not. We test the importance of the implication in the real world. It may be the case that butterflies cause the price of orange juice to go up, but what we really care about it by how much.

It seems to me, though, that there’s something else to the story. We usually like theories where X is a list of palatable assumptions. A crazy theory linking the price of twinkies to the business cycle — even if it was internally consistent and all tests of its implications were passed — would still be crazy.

By: Gabriel

Gabriel — Tue, 10 Nov 2009 00:19:17 +0000

Well, even worse… all of those mechanisms must be compatible with each other, in general equilibrium.

The Frisch elasticity is one. (I mean a single elasticity in all mechanisms, not “=1″).