This paper presents arguments that challenge what I call the fact/value separability thesis: the idea, roughly, that factual judgements can be made independently of judgements of value. I will look at arguments to the effect that facts and values are entangled in the following areas of the scientific process in economics: theory development, economic concept formation, economic modelling, hypothesis testing, and hypothesis acceptance.

In the ongoing debate about the impact that studies of public ignorance should have on the study of culture, Mark Fenster and Bret Chandler assume that wider political participation must be our goal, because, to them, political ignorance is a culturally imposed, and therefore removable, obstacle—as if, without the baleful influence of culture, political participants would be well informed. Culture is indeed a primary influence on people's political opinions, so political scientists should indeed study the role it plays in the (...) formation of political beliefs. But such studies should begin with ignorance as people's default position, and should refrain from assuming that the source of ignorance is cultural domination or manipulation. (shrink)

Over recent years support for deliberative democracy as a regulative ideal against which political and economic institutions should be judged has become the dominant tradition within political theory. Deliberative democrats such as Amy Guttman and Dennis Thompson argue that deliberative public decision making would bring with it important epistemological and ethical gains. Closer inspection of these claims, however, suggests that deliberative democratic arrangements are not only impractical but are fundamentally at odds with the epistemic and ethical goals that their supporters (...) seek to advance. Arrangements based on “exit” rather than “voice” may be better placed to meet these challenges in a world characterized by complexity and conflicting moral values. (shrink)

Capital regulations stemming from the Basel accords created incentives for banks to securitize mortgages, even risky ones; hold them at a correspondingly low Basel risk weight; or shift them off of banks' balance sheets to obtain even greater leverage. Securitization was praised by economists and regulators for dispersing risks to investors across the world, providing greater resilience to the financial system. However, since in reality banks tended to hold onto securitized assets—either on their balance sheets or off of them, in (...) off‐balance‐sheet entities—the accumulated credit risk remained with the banks, especially in the “shadow banking sector.” This explains the heightened vulnerability of the financial system to a sudden collapse. (shrink)

Over recent years support for deliberative democracy as a regulative ideal against which political and economic institutions should be judged has become the dominant tradition within political theory. Deliberative democrats such as Amy Guttman and Dennis Thompson argue that deliberative public decision making would bring with it important epistemological and ethical gains. Closer inspection of these claims, however, suggests that deliberative democratic arrangements are not only impractical but are fundamentally at odds with the epistemic and ethical goals that their supporters (...) seek to advance. Arrangements based on ?exit? rather than ?voice? may be better placed to meet these challenges in a world characterized by complexity and conflicting moral values. (shrink)

ABSTRACT Capital regulations stemming from the Basel accords created incentives for banks to securitize mortgages, even risky ones; hold them at a correspondingly low Basel risk weight; or shift them off of banks' balance sheets to obtain even greater leverage. Securitization was praised by economists and regulators for dispersing risks to investors across the world, providing greater resilience to the financial system. However, since in reality banks tended to hold onto securitized assets—either on their balance sheets or off of them, (...) in off‐balance‐sheet entities—the accumulated credit risk remained with the banks, especially in the “shadow banking sector.” This explains the heightened vulnerability of the financial system to a sudden collapse. (shrink)

ABSTRACT The illusion of explanatory depth, which has been identified by cognitive psychologists, may play a prominent role in encouraging regulatory action. This special type of overconfidence would logically lead regulators to believe that they are aware of the relevant causes and consequences of the activities they might regulate, and of the unintended side effects of the regulatory actions they are contemplating. So, as with other cognitive biases, the illusion of explanatory depth is likely to lead to mistakes. And unlike (...) the biases that have been the focus of so much behavioral economics, the illusion of explanatory depth is uniquely resistant to correction by those who are aware of it as a general problem and rigorously attempt to keep it under control. (shrink)

In the ongoing debate about the impact that studies of public ignorance should have on the study of culture, Mark Fenster and Bret Chandler assume that wider political participation must be our goal, because, to them, political ignorance is a culturally imposed, and therefore removable, obstacle—as if, without the baleful influence of culture, political participants would be well informed. Culture is indeed a primary influence on people's political opinions, so political scientists should indeed study the role it plays in the (...) formation of political beliefs. But such studies should begin with ignorance as people's default position, and should refrain from assuming that the source of ignorance is cultural domination or manipulation. (shrink)

ABSTRACT The financial crisis was caused by the complex, constantly growing web of regulations designed to constrain and redirect modern capitalism. This complexity made investors, bankers, and perhaps regulators themselves ignorant of regulations promulgated across decades and in different “fields” of regulation. These regulations interacted with each other to foster the issuance and securitization of subprime mortgages; their rating as AA or AAA; and previously their concentration on the balance sheets (and off the balance sheets) of many commercial and investment (...) banks. As a practical matter, it was impossible to predict the disastrous outcome of these interacting regulations. This fact calls into question the feasibility of the century‐old attempt to create a hybrid capitalism in which regulations are supposed to remedy economic problems as they arise. (shrink)