Money manager Barry Ritholtz comments on the wrong concepts about the stock market held by many economists and MBAs:
The tenacity of bad ideas is quite astounding. Just because something is wrong, and verifiably so, does not seem to have much immediate impact. It remains a staple of academia, as well as the actual practice of investing — despite its questionable truth.
It’s not just investing where wrong ideas persist in spite of the facts. Depending on their ideological persuasion, many economists set up models and theories of how things work and never change them no matter what actually happens in the economy. That is why economics is a long way from being scientific. Economists may use a lot of high-powered mathematics but mathematics can’t remedy bad initial assumptions based on faulty ideas about human behavior.
In science, we constantly test our theories with data from the real world. No matter how much we may cherish a theory, we have to modify or even discard it when it doesn’t agree with the facts. Not so with much of economics where ideology, not facts, provides the framework. When the economy doesn’t improve from policies that are supposed to fix things, economists don’t reassess and look for a different approach—they cry for more of the same.