In “Dilemmas of an Economic Theorist” (Econometrica, July 2006) Ariel Rubinstein reflects on the meaning, implications, and relevance of formal economic modeling:
What are we trying to accomplish as economic theorists? We essentially play with toys called models. We have the luxury of remaining children over the course of our entire professional lives and we are even well paid for it. We get to call ourselves economists and the public naively thinks that we are improving the economy’s performance, increasing the rate of growth, or preventing economic catastrophes. Of course, we can justify this image by repeating some of the same fancy sounding slogans we use in our grant proposals, but do we ourselves believe in those slogans?
Rubinstein goes on to identify four specific dilemmas facing the mathematical economic theorist: absurd conclusions, responding to reality, modelless regularities, and relevance. (He admits that relevance is not high on his list of priorities — “I don’t care about stock market prices and I’m not sure I know what ‘equities’ are. . . . I am not happy with the idea that I may be acting in the interest of fanatic profit maximizers.”) For Rubinstein, economics is primarily an intellectual game, an exercise in puzzle-solving, an attempt to construct clever fables.
The paper is interesting and illuminates clearly the mindset of a contemporary mainstream economic theorist. As expected, Rubinstein is completely unaware of (or chooses to ignore) the literature on economic methodology, not only from Austrians, but also by others specializing in the philosophy of science.
For more discussion see my blog entry on Organizations and Markets.