By Andrew Gelman and Hal Stern.
The difference between 25+-10 (statistically significantly different from zero) and 10+-10 (not statistically significantly different from zero) is 15+-14 -- not statistically significant.
A good example was the research linking homosexuality to the number of older siblings -- number of older brothers was statistically significant, number of older sisters was not, but the difference between the two effects was not statistically significant!
Gerd Gigerenzer has an article "Mindless Statistics" criticizing the use of statistics in the field of psychology. Psychologists use the "null ritual" to publish papers and advance their careers, but don't take statistics seriously. Practicioners suffer from cognitive illusions which emphasize the "usefulness" of finding a statistically significant result.
If an effect with p<0.01 is found, the probability of the null hypothesis being true is not known, nor is the probability that the effect will be found in future experiments.
Sunday, April 1, 2007
Marketing Models
Yonay and Breslau, "Marketing Models: The Culture of Mathematical Economics"
Sociologists often criticize economists for using unrealistic models and for focusing on formal models instead of empirical research. However, the authors look to approach economists as anthropologists approach foreign societies, without using their own standards to evaluate what they see. They focus on "mainstream economics" and in particular on "model-building" which is the "keystone of the economic discipline."
Models in economics are not meant to be realistic but insightful -- capable of highlighting important mechanisms that can explain important phenomena. Economists advance their careers by finding holes in widely accepted theories; they are interested in empirical phenomena to the extent that there is a blind spot in the literature regarding it.
Even as existing theories are revised, there are a set of standard assumptions that are culturally dictated (some assumptions are easier to make than others, because everyone else is also making them). Mainstream economics is committed to methodological individualism (modeled agents are individuals) but not necessarily rationality (although properly modelling deviations from rationality is largely a matter of gut feel and intuition). However, nonrational behavior in economics must still be formalized -- "you must say something." Models must be "close enough" to the real world but also need to be tractable, so that an equilibrium solution exists. Equilibrium solutions are emphasized not because economists believe that the world is static, but because they impose a consistency test on models, meaning that the model is a possible explanation for whatever needs to be explained. As models become more complex, it becomes harder and harder (perhaps impossible) to find an equilibrium solution.
It would be interesting to think about the strengths and limitations of relying on formal models requiring equilibrium.
Sociologists often criticize economists for using unrealistic models and for focusing on formal models instead of empirical research. However, the authors look to approach economists as anthropologists approach foreign societies, without using their own standards to evaluate what they see. They focus on "mainstream economics" and in particular on "model-building" which is the "keystone of the economic discipline."
Models in economics are not meant to be realistic but insightful -- capable of highlighting important mechanisms that can explain important phenomena. Economists advance their careers by finding holes in widely accepted theories; they are interested in empirical phenomena to the extent that there is a blind spot in the literature regarding it.
Even as existing theories are revised, there are a set of standard assumptions that are culturally dictated (some assumptions are easier to make than others, because everyone else is also making them). Mainstream economics is committed to methodological individualism (modeled agents are individuals) but not necessarily rationality (although properly modelling deviations from rationality is largely a matter of gut feel and intuition). However, nonrational behavior in economics must still be formalized -- "you must say something." Models must be "close enough" to the real world but also need to be tractable, so that an equilibrium solution exists. Equilibrium solutions are emphasized not because economists believe that the world is static, but because they impose a consistency test on models, meaning that the model is a possible explanation for whatever needs to be explained. As models become more complex, it becomes harder and harder (perhaps impossible) to find an equilibrium solution.
It would be interesting to think about the strengths and limitations of relying on formal models requiring equilibrium.
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