[joe_the_user]

If medicine can be made scientific so can finance.

Uh, one thing to be careful with in such a statement is reasoning by analogy.

Consider if someone says:

"If physics can be made scientific, so can pertual-motion-machine-construction"

Or

"If chemistry can be made scientific, so can alchemy!"

Or

"If astronomy can be made scientific, so can astrology!"

The problem is clearer. Not every "field" is subject to valid innovation since some fields are inherently bogus. It is a hard problem determining which fields can "scientifized" so you might not be wrong. But I personally think that the real scientific economists are those that have argued that you're not ever going to find a "financial innovation" which adds value to the economy as a whole.

[kurtosis]

I strongly disagree - I don't think any fields - even perpetual motion machine construction or astrology - are inherently bogus. We should demand that these fields make falsifiable predictions and then test them to find out which ones aren't false. Of course we can't conclude that they are inherently bogus when we haven't tested them. If we have tested them and found that they are false then that's all we need to know. (I'm all for testing a genuinely new perpetual motion machine, almost all "new perpetual motion machines" have already been tried or depend on principles that have already been tested and proven false.

Let me reiterate since it seems that my message was a little unclear - the purpose of the medicine and finance analogy was say that even though there were many bogus financiers making false promises about their products by using simple models where they don't apply - this doesn't mean that there could never be non-bogus financiers that take a more rigorous and transparent approach to their use of models. We should demand the construction of financial instruments which cannot be "booby trapped". This is a case for more and better financial innovation, not less of it.

Of course this takes a broad view of financial innovation to include such things as auction design, election methods, etc.

I will also retract my statement that the valuation models were pseudo-science - to the extent that they made real predictions they were scientific. But they were undoubtedly cynically exploited.

[dantheman]

In fact the mere problem of discerning pseudo-science from science is almost impossible by an fixed criteria.

[kurtosis]

Not sure what you mean by fixed-criterion How about about just demanding falsifiable predictions, and doing experiments to test them?

[dantheman]

Most people think astrology is bunk science, but they can make predictions and do experiments.

Throughout history physics has had experiments whose results were incompatible with current models, which eventually lead to new theories (relativity, etc) but how do you know when contradicting information disproves your theory or will expand it.

[roundsquare]

I think we have an issue of defining pseudo-science here.

Definition 1: A field that can't be can't make falsifiable predeictions. By this definitino, astrology is certainly a real science.

Definition 2: A field that makes false predictions. By this definition, most peoplle thing astrology is a pseudo-science.

[dantheman]

Definition 2 is a flawed definition, perhaps some parts of astrology are wrong, but some parts of physics are wrong, we just need more time to work out the bugs in astrology -- more experiments need to be made.

If you're interested in this problem, this is a great reference: http://plato.stanford.edu/entries/pseudo-science/

[khafra]

I think when your model consistently gives results indiscernable from random noise in its strongest application (cf. blog.okcupid.com), you can safely conclude that it's of no more value than a model selected at random from all possible models of similar complexity.