Quote Originally Posted by Entropy View Post
Dayuhan,

Maybe you can explain why there is no leading theory in economics unlike, for instance, evolution or plate tectonics. There are several competing schools and none of them seem to have a lock on predictive accuracy.
The reason is mostly the limited data sets for econometric analysis (squeezing the value of certain variables out of data sets). Take economic crisis as an example. Major economic models (such as used in central banks) can have in excess of 2,000 variables, but they still lack the data input for crisis situations because there's not enough data to discern the values of many variables.
It's rarely possible to observe a specific variable directly because it's so difficult to set up clean experiments. Instead, economists need to use huge datasets to find the value through empirical analysis (and this requires huge datasets from similar situations).
Consequently, such models fare poorly in regard to simulation of crisis situations.

Many other times there's not so much several competing theories as several adding theories. There are about seven theories about the optimal currency area, each one about one aspect of the topic (some aspects favour bigger, others favour smaller common currency areas). An economist needs to know all or almost all of these, for missing one may lead to entirely wrong conclusions.


There's furthermore the problem that economic theory is a very wide field. Two nobel prize winners can discuss a single topic and disagree (happens actually quite often, see Krugman vs. Stieglitz). Afterwards, it's usually easy to point out why one has argued one way and the other one a different way: Their background (research on certain fields) usually leads to a bias in such discussions (the contributions from different research fields are often competing and it takes a neutral synthesis and good econometric data to find a complete picture).