Abstract

PFLEIDERER, Paul. Chameleons: The misuse of theoretical models in finance and economics. Rev.econ.inst. [online]. 2014, vol.16, n.31, pp.23-60. ISSN 0124-5996.

In this essay I discuss how theoretical models in finance and economics are used in ways that make them "chameleons" and that chameleons devalue intellectual currency and obscure policy debates. A model becomes a chameleon when it is based on assumptions with dubious connections with the real world but draws conclusions that are uncritically (or not critically enough) applied to understand our economy. I discuss how chameleons are created and nurtured by the mistaken notion that a model should not be judged by its assumptions, by the unfounded argument that models should have equal standing until definitive empirical tests are conducted; and by misplaced appeals to "as-if " arguments, by mathematical elegance, by subtlety, by references to assumptions that are "standard in the literature," and by the need for manageability.

Keywords : theoretical models; finance; economics.

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