Squishy theories

Psychology and human behavior have always provided rich fodder for those seeking new theories. The rich complexity offered by these areas allowed the creation of many interesting hypotheses but testing of them have been difficult. In the rich tradition of scientific exploration, many try to predict system behavior by closely analyzing the components of the system and aggregating them. For example, take the stock market for example. The advocates of the idea that humans behave irrationally, naturally extend it to the system level and hypothesize that the system made up of individuals has to be irrational as well. In this case, since the component - the individual itself - shows complex behavior (sometimes rational and sometimes irrational), those who attempt to explain system behavior reach a rather obvious conclusion - the system also exhibits complex behavior. Even the greatest prognosticator of constant rationality of the human mind with occasional excursions into "irrational exuberance," recently threw his hands in the air and declared the end of rationality. Admirers of human irrationality gained more energy recently as the chaos in the financial markets was supported by irrational behavior of humans (some of them regulators and some others perpetuating fraud).

It is, however, important to question the applicability of component analysis and aggregation in the prediction of the behavior of non-linear systems such as biological systems and the stock market. In such systems, the understanding of the behavior of individual components do not allow a systematic prediction of the system behavior. If the component's behavior is complex in itself, it creates significant opportunity to create theories of system behavior. Since much of these cannot be tested, it is an easy playground for scientists and economists, who also likes fiction.