Evolution and Economic Complexity

Evolution and Economic Complexity

Edited by J. Stanley Metcalfe and John Foster

Dedicated to the goal of furthering evolutionary economic analysis, this book provides a coherent scientific approach to deal with the real world of continual change in the economic system. Expansive in its scope, this book ranges from abstract discussions of ontology, analysis and theory to more practical discussions on how we can operationalize notions such as ‘capabilities’ from what we understand as ‘knowledge’. Simulation techniques and empirical case studies are also used.

Chapter 7: Erring to be Right: The Paradox of Error in the Foundation of Probability in Economics

Francisco Louçã

Subjects: economics and finance, evolutionary economics


Francisco Louçã1 INTRODUCTION This chapter is a first instalment of my research on the nature of the concept of errors in economic theories, models and equations, and proceeds to an investigation of some of the evolving discussions among economists on the nature of randomness and determinism, probability and certainty. The next section describes some of the antecedents, followed by a section summarizing the intellectual context of the probabilistic revolution in economics. Finally, the conclusion recapitulates the argument and presents some sceptical considerations in relation to the foundational dichotomy of law and ‘chaos’, or order and chance. The conceptualization of the ‘error’ in evolutionary biology is suggested as an alternative theoretical framework to be considered in economics. This research emerges from a puzzle that can be expressed by a simple question. Why are so few economists seemingly unconcerned with the obvious discrepancy between concepts such as: ‘error’; ‘shock’; ‘residual’; ‘perturbation’; ‘disturbance’; ‘innovation’; ‘stimuli’; ‘noise’; ‘aberration’; and so many others used to describe one of the core operational terms in our models? Reading this list of nine different names for the statistical error brings to mind Joan Robinson’s remark on the teaching of the concept of ‘capital’. She once wrote that this concept was so abstruse or ill-defined that, as a teacher presenting it to students, she secretly hoped that no one would ask the difficult question, namely: ‘what exactly do you mean by, “capital”?’ in order that the course could proceed on an albeit shaky, but...

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