Paul Pfleiderer on the Misuse of Economic Models

Paul Pfleiderer, C.O.G. Miller Distinguished Professor of Finance at the Graduate School of Business at Stanford University, talks with EconTalk host Russ Roberts about his recent paper critiquing what Pfleiderer calls "Chameleon Models," economic models that are thought to explain the real world with little analysis of the accuracy of their assumptions. Also discussed are Akerlof’s market for lemons model, Friedman’s idea that assumptions do not have to be reasonable as long as the model predicts what happens in the real world, and the dangers of leaping from a model’s results to making policy recommendations.