Economists have been blamed for their inability to forecast and address crises. This article attributes this inability to intertwined factors: the lack of a coherent definition of crises, the reference-class problem, the lack of imagination regarding the nature of future crises and sample-selection biases. Specifically, economists tend to adapt their views on crises to recent episodes, and omit averted and potential crises. Threshold-based definitions of crises run the risk of being ad hoc. Using historical examples, this article highlights some epistemological shortcomings of the current approach.

This paper establishes a converse comparison theorem for real-valued decoupled forward backward stochastic differential equations with jumps.

Modern finance is a social science where the complexity of mathematical models compares to that of physics. The aim of this paper is to provide a conceptual framework for the interpretation of mathematical models in finance, in order to determine the epistemological standards according to which financial theory must be assessed. The analysis enlightens the contrast between highly objective results and the radical uncertainty that governs the markets. The main contribution of the paper is to show that the reasons why finance models are relative and non-causal are deeply rooted in the nature of finance theory itself. An important consequence is that arbitrage-free model prices are reference prices and indicators of the economical features underlying mathematical models. As such, they can be used to structure and support final pricing and hedging decisions, but not to predict future market prices.

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