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> Economics needs to rely more on computation and data than on abstract mathematical models if it ever hopes to have real predictive power. In industry it does

> Economics needs to rely more on computation and data than on abstract mathematical models if it ever hopes to have real predictive power. In industry it does. Every major bank and hedge fund employs economists, and generally they have a pretty good grasp of what's going on. Of course those models are kept secret, much like trading algorithms. That's why stuff like Econometrics is taught, and why (at least in the program I took) a decent amount of stats courses are required. There's many branches of Economics which look at different things; you have macro which is mostly theoretical and constructs broad models which attempt to model behaviour in a somewhat abstract way, micro which attempts to model individual behaviour, game theory which is practical but not necessarily for predictive power on a broad level, and Econometrics which is very practical, but doesn't necessarily provide much insight beyond medium-term predictions.

yvdriess 9y ago
> In industry it does. Every major bank and hedge fund employs economists, and generally they have a pretty good grasp of what's going on. Of course those models are kept secret, much like trading algorithms. How useful are those models, however? Without knowing much of the field, I do see the managed funds not outperforming index funds over the long term. Would the current run to the large unmanaged funds not demonstrate how limited their trade secret models are? In the case of automatic trading models, occasionally running wildly off the rails, there is probably still value, in that it does something we otherwise could not. A hedge fund manager that fails to outperform the index over the long term is not providing any value, except perhaps in providing a social function.