Fifty years ago this month, Thomas Kuhn’s The Structure of Scientific Revolutions was published, and it remains one of the more influential books of our time. It is also one of the most cited academic books of all time. If you haven’t read it or read it recently, you might pick up a copy of the new 50th anniversary edition.
If you have ever heard or used the term “paradigm shift” then you have been influenced by Kuhn. Before Kuhn, our views of science were dominated by ideas about how it ought to develop (the “scientific method”) together with a sense of narrative, of science marching forward inexorably and heroically.
Where the standard account saw steady, cumulative “progress,” Kuhn saw movement and discontinuities – a set of alternating “normal” and “revolutionary” phases in which communities of specialists in particular fields are plunged into periods of difficulty and uncertainty. These revolutionary phases (e.g., the transition from Newtonian mechanics to quantum physics) correspond to great conceptual breakthroughs which are often ignored or rejected for long periods prior to ultimate acceptance and which form the foundation for succeeding phases in which the breakthrough has become the consensus. That this version of history seems no-big-deal now demonstrates how powerful his ideas have become.
Per Popper, “normal science” is distinguished by the fact that it focuses upon refuting rather than confirming its theories. However, and consistent with more recent discoveries of our behavioral flaws and biases, “normal” scientists in reality spend most of their time trying to confirm what they already think — their paradigm. We shouldn’t be surprised whenever confirmation bias rears its head.
That Kuhn deemed his book a mere “sketch” (only 172 pages) is part of its charm and its power. It is simple, straightforward and easy to understand. It just makes sense.
A “paradigm” as an intellectual framework that makes research possible. It’s clear (to me at least) that the finance world needs a new paradigm. Its model-driven alleged rationality just plain doesn’t work very well. It doesn’t fit the data and is inconsistent with experience at nearly every level. The best of cutting-edge financial, economic and scientific research today is data- rather than theory-driven. Being data driven is a focus of this blog (see, e.g., here, here, here and here), as the masthead proclaims. I hope that our next financial paradigm (not to mention economic and political paradigms) is predicated not upon some overarching theory, but rather upon that which can be demonstrated to work. That’s more than enough of an intellectual framework for me.
Thomas Kuhn deserves as much.