—Robust Prediction and Unrealistic Assumptions

In the response to my commentary on his 2007 editorial entitled “It's the Findings, Stupid, Not the Assumptions,” Steven Shugan raises a number of thought-provoking ideas. In this rejoinder, I focus on three issues that Shugan and I hold the most divergent views. First, while Shugan uses the terms “realistic” and “realism” in several different meanings, I define the realism of an assumption as the extent to which it corresponds with the real world. Second, Shugan makes a strong claim that predictions can be objectively evaluated whereas assumptions cannot. I refute his claim by arguing that testing predictions and testing assumptions follow the same research process of checking whether the proposition concerned corresponds with reality. Third, Shugan maintains that given predictive accuracy, assumptions need not be realistic. I hold an opposite view for the obvious reason that the same prediction may be generated by completely different mechanisms, which in turn are based on different assumptions. Last but not least, the example of socialist economic planning shows that unrealistic assumptions can generate dangerous theories.