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.’