this post was submitted on 31 Aug 2023
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[–] affiliate@lemmy.world 29 points 1 year ago

its really absurd. it becomes even stupider when considering that many of these assumptions allow mathematical models to be built on top of them, and then those models are treated with such importance and authority. but then they sometimes also get the math wrong. i remember learning a while back that part of the 2009 housing crash was caused by faulty mathematics laid ontop of these weird economic assumptions. the part im talking about is:

The paper, generally referred to as the Dahlem report, condemns a growing reliance over the past three decades on mathematical models that improperly assume markets and economies are inherently stable, and which disregard influences like differences in the way various economic players make decisions, revise their forecasting methods and are influenced by social factors.

the first part refers to a kind of "smoothness assumption", where they approximate the bumpy, jagged graph with a "smooth" curve that is easier to analyze. but it turned out the bumps were there for a reason. oops! the second part of the quote then says that in addition to the faulty smoothness assumption, there were quite a few important things the model flat out ignored