This paper discusses the epistemic import of highly abstract and simplified theoretical models using Thomas Schelling’s checkerboard model as an example. We argue that the epistemic contribution of theoretical models can be better understood in the context of a cluster of models relevant to the explanatory task at hand. The central claim of the paper is that theoretical models make better sense in the context of a menu of possible explanations. In order to justify this claim, we introduce a distinction (...) between causal scenarios and causal mechanism schemes. These conceptual tools help us to articulate the basis for modelers’ intuitive confidence that their models make an important epistemic contribution. By focusing on the role of the menu of possible explanations in the evaluation of explanatory hypotheses, it is possible to understand how a causal mechanism scheme can improve our explanatory understanding even in cases where it does not describe the actual cause of a particular phenomenon. (shrink)

In recent debates mechanisms are often discussed in the context of ‘complex systems’ which are understood as having a complicated compositional structure. I want to draw the attention to another, radically different kind of complex system, in fact one that many scientists regard as the only genuine kind of complex system. Instead of being compositionally complex these systems rather exhibit highly non-trivial dynamical patterns on the basis of structurally simple arrangements of large numbers of non-linearly interacting constituents. The characteristic dynamical (...) patterns in what I call “dynamically complex systems” arise from the interaction of the system’s parts largely irrespective of many properties of these parts. Dynamically complex systems can exhibit surprising statistical characteristics, the robustness of which calls for an explanation in terms of underlying generating mechanisms. However, I want to argue, dynamically complex systems are not sufficiently covered by the available conceptions of mechanisms. I will explore how the notion of a mechanism has to be modified to accommodate this case. Moreover, I will show under which conditions the widespread, if not inflationary talk about mechanisms in complex systems stretches the notion of mechanisms beyond its reasonable limits and is no longer legitimate. (shrink)

This article shows how the MISS account of models—as isolations and surrogate systems—accommodates and elaborates Sugden’s account of models as credible worlds and Hausman’s account of models as explorations. Theoretical models typically isolate by means of idealization, and they are representatives of some target system, which prompts issues of resemblance between the two to arise. Models as representations are constrained both ontologically (by their targets) and pragmatically (by the purposes and audiences of the modeller), and these relations are coordinated by (...) a model commentary. Surrogate models are often about single mechanisms. They are distinguishable from substitute models, which are examined without any concern about their connections with the target. Models as credible worlds are surrogate models that are believed to provide access to their targets on account of their credibility (of which a few senses are distinguished). (shrink)

The efficient markets hypothesis has been the central proposition in finance for nearly thirty years. It states that securities prices in financial markets must equal fundamental values, either because all investors are rational or because arbitrage eliminates pricing anomalies. This book describes an alternative approach to the study of financial markets: behavioral finance. This approach starts with an observation that the assumptions of investor rationality and perfect arbitrage are overwhelmingly contradicted by both psychological and institutional evidence. In actual financial markets, (...) less than fully rational investors trade against arbitrageurs whose resources are limited by risk aversion, short horizons, and agency problems. The book presents and empirically evaluates models of such inefficient markets. Behavioral finance models both explain the available financial data better than does the efficient markets hypothesis and generate new empirical predictions. These models can account for such anomalies as the superior performance of value stocks, the closed end fund puzzle, the high returns on stocks included in market indices, the persistence of stock price bubbles, and even the collapse of several well-known hedge funds in 1998. By summarizing and expanding the research in behavioral finance, the book builds a new theoretical and empirical foundation for the economic analysis of real-world markets. (shrink)

The efficient markets hypothesis has been the central proposition in finance for nearly thirty years. It states that securities prices in financial markets must equal fundamental values, either because all investors are rational or because arbitrage eliminates pricing anomalies. This book describes an alternative approach to the study of financial markets: behavioral finance. This approach starts with an observation that the assumptions of investor rationality and perfect arbitrage are overwhelmingly contradicted by both psychological and institutional evidence. In actual financial markets, (...) less than fully rational investors trade against arbitrageurs whose resources are limited by risk aversion, short horizons, and agency problems. The book presents and empirically evaluates models of such inefficient markets. Behavioral finance models both explain the available financial data better than does the efficient markets hypothesis and generate new empirical predictions. These models can account for such anomalies as the superior performance of value stocks, the closed end fund puzzle, the high returns on stocks included in market indices, the persistence of stock price bubbles, and even the collapse of several well-known hedge funds in 1998. By summarizing and expanding the research in behavioral finance, the book builds a new theoretical and empirical foundation for the economic analysis of real-world markets. (shrink)

The ArgumentIn its reconstruction of scientific practice, philosophy of science has traditionally placed scientific theories in a central role, and has reduced the problem of mediating between theories and the world to formal considerations. Many applications of scientific theories, however, involve complex mathematical models whose constitutive equations are analytically unsolvable. The study of these applications often consists in developing representations of the underlying physics on a computer, and using the techniques of computer simulation in order to learn about the behavior (...) of these systems. In many instances, these computer simulations are not simple number-crunching techniques. They involve a complex chain of inferences that serve to transform theoretical structures into specific concrete knowledge of physical systems. In this paper I argue that this process of transformation has its own epistemology. I also argue that this kind of epistemology is unfamiliar to most philosophy of science, which has traditionally concerned itself with the justification of theories, not with their application. Finally, I urge that the nature of this epistemology suggests that the end results of some simulations do not bear a simple, straightforward relation to the theories from which they stem. (shrink)

A traditional view of mathematical modeling holds, roughly, that the more details of the phenomenon being modeled that are represented in the model, the better the model is. This paper argues that often times this ‘details is better’ approach is misguided. One ought, in certain circumstances, to search for an exactly solvable minimal model—one which is, essentially, a caricature of the physics of the phenomenon in question.

Simulations (both digital and analog) and experiments share many features. But what essential features distinguish them? I discuss two proposals in the literature. On one proposal, experiments investigate nature directly, while simulations merely investigate models. On another proposal, simulations differ from experiments in that simulationists manipulate objects that bear only a formal (rather than material) similarity to the targets of their investigations. Both of these proposals are rejected. I argue that simulations fundamentally differ from experiments with regard to the background (...) knowledge that is invoked to argue for the “external validity” of the investigation. (shrink)

It is argued that one can learn from minimal economic models. Minimal models are models that are not similar to the real world, do not resemble some of its features, and do not adhere to accepted regularities. One learns from a model if constructing and analysing the model affects one’s confidence in hypotheses about the world. Economic models, I argue, are often assessed for their credibility. If a model is judged credible, it is considered to be a relevant possibility. Considering (...) such relevant possibilities may affect one’s confidence in necessity or impossibility hypotheses. Thus, one can learn from minimal economic models. (shrink)

This paper asks how, in science in general and in economics in particular, theoretical models aid the understanding of real-world phenomena. Using specific models in economics and biology as test cases, it considers three alternative answers: that models are tools for isolating the ‘capacities’ of causal factors in the real world; that modelling is ‘conceptual exploration’ which ultimately contributes to the development of genuinely explanatory theories; and that models are credible counterfactual worlds from which inductive inferences can be made. The (...) paper argues that the ‘credible worlds’ account captures significant aspects of scientific practice, even if many modellers see their work as conceptual exploration. (shrink)

As scientists begin to study increasingly complex questions, many have turned to computer simulation to assist in their inquiry. This methodology has been challenged by both analytic modelers and experimentalists. A primary objection of analytic modelers is that simulations are simply too complicated to perform model verification. From the experimentalist perspective it is that there is no means to demonstrate the reality of simulation. The aim of this paper is to consider objections from both of these perspectives, and to argue (...) that a proper understanding and application of robustness analysis is able to resolve them. ‡The author would like to thank Cristina Bicchieri, Michelle Foa, Paul Humphreys and Michael Weisberg for their helpful comments and suggestions. †To contact the author, please write to: Department of Philosophy, University of Pennsylvania, 433 Logan Hall, 249 S. 36th Street, Philadelphia, PA, 19104-6304; e-mail: [email protected]. (shrink)

Modelling cannot be characterized as isolating, nor models as isolations. This article presents three arguments to that effect, against Uskali Mäki's account of models. First, while isolation proceeds through a process of manipulation and control, modelling typically does not proceed through such a process. Rather, modellers postulate assumptions, without seeking to justify them by reference to a process of isolation. Second, while isolation identifies an isolation base—a concrete environment it seeks to control and manipulate—modelling typically does not identify such a (...) base. Rather, modellers construct their models without reference to concrete environments, and only later seek to connect their models to concrete situations of the real world. Third, Mäki argues that isolation employs idealization to control for disturbing factors, but does not affect the factors or mechanisms that are supposed to be isolated. However, models typically make idealizing assumptions about the factors and mechanisms that are the focus of investigation. Thus, even the product of modelling often cannot be characterized as isolation. (shrink)