A new book* by Roman Frydman and Michael Goldberg coins the phrase “imperfect knowledge economics” to describe this world of fundamental uncertainty. They use the systematic failure of attempts to analyse exchange rate swings to illustrate the hopelessness of a search for economic explanations that transcend time and place. Frequent discontinuities and transitions in the ways market participants view events mean that economic models, like historical narratives, are context specific. The search for “sharp prediction” – the mantra of the modern scientific economist who seeks to replicate the successes of physics for social science – is doomed to failure.
The best that economists and their clients can do is identify qualitative regularities and patterns in events – as historians do – and, like historians, they can say a lot when they accept their inability to make “sharp predictions”. (John Kay, "The fruitless search for exact knowledge," Financial Times, 17 October 2007.)