The Efficient Market Hypothesis resists empirical falsification through the protective shield of auxiliary hypotheses

Evidence

This imperviousness of an isolated hypothesis to definitive empirical rejection, and the crucial role of auxiliary hypotheses in serving as a protective barrier, is familiar in the philosophy of science literature as Duhem’s Thesis. The mere fact of deflecting disconfirmation onto harmless auxiliary hypotheses is not prima facie an illegitimate ploy; it occurs in all the natural sciences. The issue was not that immunizing stratagems had been resorted to in this instance; rather, it was that the EMH had proven so rabidly tenacious within orthodox economics and in business schools, occupying pride of place for decades within both macroeconomics and finance, that economists had begun to ignore most modern attempts to disprove it. The lesson for crisis watchers that we shall entertain is that the EMH cannot be killed easily, and maybe not at all within the neoclassical parameters of the current economics profession. — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 753

Categorization

• DEFINE: Explains Duhem’s Thesis as the mechanism by which the EMH immunizes itself against disconfirmation.
• XREF: Connects to the book’s broader ‘thought collective’ thesis about how orthodox economics rebuilds its core doctrines; also links to Lakatos/Kuhn notions of research-program immunity. — connects to: Market efficiency means prices fully reflect available information. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 291; Modigliani-Miller propositions resist empirical testing because risk classes cannot be fixed — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 389; The random-walk hypothesis coexisted with contrary evidence from its earliest formulations. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 416 (+5 more)

Broader Connections

• The efficient market hypothesis survived every empirical refutation and became finance orthodoxy #corroborates (0.90) — Philip Mirowski, Never Let a Serious Crisis Go to Waste, 758