The Review of Austrian Economics, 15:2/3, 131–142, 2002.
2002 Kluwer Academic Publishers. Manufactured in The Netherlands.
DAVID M. LEVY
Department of Economics, Center for Study of Public Choice, George Mason University, Fairfax, VA 22030, USA
Abstract. I propose to show how to translate the economic analysis of institutions developed in the tradition
of “worst case” political economy into the lingua franca of robust statistics. An institution will be deﬁned as
contingent upon a design theory and the difﬁculty we consider is the use of the institution by the designer.
The technical bridge between institutional robustness and statistical robustness is the the possibility of ex-
ploratory data analysis [EDA] with respect to the design theory. In an institutional context with EDA comes the
recognition that the model is not completely speciﬁed, that we do not fully understand the structure of world before
studying it. In a statistical context with EDA comes a non-normal error distribution.
The relationship between evolutionary institutions and robust institutions is discussed. A conjecture that “rule
utilitarianism” can be thought of as “robust utilitarianism” is defended with the historical example of William
Paley’s discussion of the utility of murder.
Key Words: robust, institutional analysis, public choice, exploratory data analysis
JEL classiﬁcation: c4, b1, h0.
Here is a historical-analytical puzzle. Why is it that J.M. Buchanan’s worst-case philosophy
of constitutional political economy sounds so similar to J.W. Tukey worst-case philo-
sophy of mathematical statistics?
The use of heavy-tailed distributions as paradigm—
without worrying overly much about descriptive accuracy as well as the “unrealistic” use of
Leviathan models—are defended by the desire to avoid disaster.
Underlying this common
concern is their questioning of the applicability of optimization considerations.
I should think the common factor linking Tukey and Buchanan is the distant inﬂuence of
the atheoretic view of human nature taught by the Greek historians.
How people behave
is not, in fact, in correspondence with their own theories of how they ought to behave.
Buchanan’s insight is explicitly informed by the constitutional theory of such careful stu-
dents of the Greek historians as Thomas Hobbes, David Hume and John Stuart Mill.
little more oblique is the fact that behind robust statistics in general stand the contribu-
tions of John von Neumann: minimax loss theory and monte carlo method. These two
contributions buy insight into real problems by sacriﬁcing any hope of a unique analytical
First, von Neumann’s minimax loss approach to decision making is absolutely
The paper was ﬁrst prepared for James Buchanan’s 80th birthday celebration. That version can be found
at http://www.uni-duisburg.de/FB1/PHILO/Buchanan/ﬁles/levy.pdf. Thanks are due to Peter Boettke, Geoffrey
Brennan, Bryan Caplan, Tyler Cowen and Maria Pia Paganelli for comments on previous drafts. I have beneﬁtted
from the suggestions of the RAE’s readers. The errors which remain are of course my responsibility alone.