Realists Vs Fundamentalists

Paul Romer has an excellent post here, highlighting the growing divide between fundamentalists, with their reliance on models, and realists, with their focus on empirical research.

Fundamentalists (like the "dynamic stochastic general equilibrium" modelers in financial markets, and the "stabilize, liberalize, privatize" ones in development policy) have an unswerving faith in models, and feel that policies should always be derived from the best available model and data filtered through this model. And, if an observation does not fit within the context of a model, it should be excluded from consideration. Realists, conscious of the limits of abstract models which filter out potentially important complexity, discounts for the flaws in the models and are more comfortable with a division of labor between the researcher who constantly refines and improves the models and the clinician who makes policy decisions.

As Prof Romer says, leave alone outliers, models cannot explain many events and actions that diverge even slightly from the norm.