Kiel Working Papers, Kiel Institute for World Economics
No 1489:
The Financial Crisis and the Systemic Failure of Academic Economics
David Colander, Hans Föllmer, Armin Haas, Michael Goldberg, Katarina Juselius, Alan Kirman, Thomas Lux and Brigitte Sloth
Abstract: The economics profession appears to have been unaware of
the long build-up to the current worldwide financial crisis and to have
significantly underestimated its dimensions once it started to unfold. In
our view, this lack of understanding is due to a misallocation of research
efforts in economics. We trace the deeper roots of this failure to the
profession’s insistence on constructing models that, by design, disregard
the key elements driving outcomes in real-world markets. The economics
profession has failed in communicating the limitations, weaknesses, and
even dangers of its preferred models to the public. This state of affairs
makes clear the need for a major reorientation of focus in the research
economists undertake, as well as for the establishment of an ethical code
that would ask economists to understand and communicate the limitations and
potential misuses of their models
Keywords: financial crisis, academic moral hazard, ethic responsibility of researchers; (follow links to similar papers)
JEL-Codes: A11,; B40,; G1; (follow links to similar papers)
17 pages, February 2009
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