The limits of the scientific method in economics and the world
By Roger Martin
The opinions expressed are his own.
Part one of this essay was published Thursday. This is part two.
As the power of the scientific method has encroached further than its applicability warrants into fields such as economics and business, its predictions of the future become ever more erroneous. In this list, we can include virtually every economic prognostication from the first half of 2008, and countless market research studies that misjudge consumer interest in the new product concepts that they test.
Were he alive today, Charles Sanders Peirce, a turn-of-the-20th-century American pragmatist philosopher, would be unsurprised at the shoddy results of these analyses. A brilliant thinker, Peirce is less famous than his peers William James and John Dewey, mainly because he was an ornery and unpleasant character. However, Peirce had an almost entirely overlooked yet extremely insightful theory applicable to modern scientific work. He concluded that no new idea was ever derived from the analysis of the past using inductive and deductive logic – the two forms of logic our modern scientific method utilize.
These forms of logic can only prove things in the past, so whether business people, economists and scientists realize it or not, the only thing about the future that the application of deductive or inductive logical analysis can predict is a simple extrapolation of the past. That is very useful for studies of things in the Aristotelian camp of cannot be other than they are. If we find some property of granite by studying existing hunks of granite, we can safely extrapolate that in the future, hunks of granite will have those properties.
However, deductive and inductive logical analyses aren’t so hot for things that can be other than they are – like economy for example. These things change constantly due to the interactions of the people and organizations. The fall of 2008 wasn’t an extrapolation of the past – it was discontinuous with the past.
If economists were being Peircian, when they saw an anomalous situation of the unprecedented economic meltdown of fall 2008, they would have taken all of our disparate knowledge and mingled it together creatively to ask: what on earth could be going on here? Rather than forgetting entirely that their theories were demonstrated to be totally lacking, and then going on to analyze some more and predict more based on those theories, they would have created a new hypothesis to explain what just happened. This would be what Peirce evocatively called ‘a logical leap of the mind’ and ‘an inference to the best explanation.’
That is the merger of science and innovation. It is what Peirce called ‘abductive logic’. It is the formation of a new hypothesis. Deductive and inductive logic can’t make the future anything but the logical extension of the past and what occurred in the fall of 2008 simply wasn’t a logical extension of the past. Peircian abductive logic could have created a new hypothesis that could be analyzed going forward, as the data streamed in.
This is certainly not the universal or even the majority instinct in our modern world. Rather, there is misplaced trust in the analysis of data to reveal some truth. Analysis certainly can: if you torture the data enough, it will give some answer, if only to make the pain go away. The problem is with the low information content of the answer. To Peirce, if an existing deductive rule is applied to the analysis of historical data, it may confirm that the rule is operative, in which case nothing new has been learned. If instead the rule is dis-confirmed (for example that in the back half of 2008, the U.S. economy didn’t perform the way we would have expected it to do), then we have learned that our deductive rule is not operative – a good thing but not a clue to the future. If inductive logic is applied using a large and sufficiently homogenous sample size, we will wait a heck of a long time to get a sample size that will enable us to confidently make an assertion that what we see is true.
Aristotle would argue that the Peircian logical leap is a product of rhetoric: the dialogue between inquiring minds that attempts to create a future that does not now exist, rather than mindlessly crunching the numbers that do exist. Rather than ask whether the new idea can be proven in advance analytically, these inquiring minds would ask how this novel idea could be tested going forward. If we listened to all of Aristotle (rather than just half of him) and mixed it with a little Peirce, we would accept the limitations of science to shape that which can be other than it is, and would spend more time and energy engaging in the sort of dialogue that creates new models that can be tested going forward.
Of course, I am not arguing that all science is devoid of novel hypotheses or that all natural and social scientists eschew abductive logic entirely. Rather, I am arguing that we need to reign in faux science, which is appropriate only for understanding things that cannot be other than they are, using the tools of deductive and inductive logic. And we need to release the energy of a broader conception of science and innovation that helps us to shape those aspects of our world that can be other than they are, using abductive logic. It won’t always be clear in advance which is which, but it is important that we not default reflexively to analysis rather than innovation. Restoring that balance is the modern – or perhaps more appropriately – post-modern challenge of our world.
Part one of this essay was published Thursday. This was part two.