Books Authored by Roman Frydman
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Imperfect Knowledge Economics:
Exchange Rates and Risk
Roman Frydman & Michael D. Goldberg
Foreword by Edmund S. Phelps
For more information about this book, including endorsements, table of contents, foreword by Edmund S. Phelps, as well as a downloadable sample of Chapter 1, please visit the Princeton University Press site.
Tom Keene discusses Imperfect Knowledge Economics with Roman Frydman on Bloomberg Radio. Download here or use the link under the photo on the Princeton University Press site.
You can also read about the book in John Kay’s Financial Times op-ed, “Beware the fruitless search for ‘sharp prediction’”, and in The Economist’s Economics Focus article, “A new fashion in modeling”.
Synopsis
Posing a major challenge to economic orthodoxy, Imperfect Knowledge Economics asserts that exact models of purposeful human behavior are beyond the reach of economic analysis. Roman Frydman and Michael Goldberg argue that the longstanding empirical failures of conventional economic models stem from their futile efforts to make exact predictions about the consequences of rational, self-interested behavior. Such predictions, based on mechanistic models of human behavior, disregard the importance of individual creativity and unforeseeable sociopolitical change. Scientific though these explanations may appear, they usually fail to predict how markets behave. And, the authors contend, recent behavioral models of the market are no less mechanistic than their conventional counterparts: they aim to generate exact predictions of "irrational" human behavior.
Frydman and Goldberg offer a long-overdue response to the shortcomings of conventional economic models. Drawing attention to the inherent limits of economists' knowledge, they introduce a new approach to economic analysis: Imperfect Knowledge Economics (IKE). IKE rejects exact quantitative predictions of individual decisions and market outcomes in favor of mathematical models that generate only qualitative predictions of economic change. Using the foreign exchange market as a testing ground for IKE, this book sheds new light on exchange-rate and risk-premium movements, which have confounded conventional models for decades.
Offering a fresh way to think about markets and representing a potential turning point in economics, Imperfect Knowledge Economics will be essential reading for economists, policymakers, and professional investors.