Here’s an interesting paper I’m reading this morning (hat tip Suresh Naidu) entitled Chameleons: The Misuse of Theoretical Models in Finance and Economics written by Paul Pfleiderer. The paper introduces the useful concept of chameleon models, defined in the following diagram:
Pfleiderer provides some examples of chameleon models, and also takes on the Milton Friedman argument that we shouldn’t judge a model by its assumptions but rather by its predictions (personally I think this is largely dependent on the way a model is used; the larger the stakes, the more the assumptions matter).
I like the term, and I think I might use it. I also like the point he makes that it’s really about usage. Most models are harmless until they are used as political weapons. Even the value-added teacher model could be used to identify school systems that need support, although in the current climate of distorted data due to teaching to the test and cheating, I think the signal is probably very slight.