Edited by J. Stanley Metcalfe and John Foster
Chapter 7: Erring to be Right: The Paradox of Error in the Foundation of Probability in Economics
7. Erring to be right: the paradox of error in the foundation of probability in 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...
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