For the most part, neither the financial industry nor economics are particularly interested in causal theories. If an investment manager or an economist finds a correlation that looks reasonably robust, they are not going to wait for causality to be established before taking a position (in the former case) or publishing (in the latter case).
The difficulty in performing controlled tests makes establishing causality difficult. Furthermore, numerical results look so much more certain than vague hand-waving causal explanations.
I am pretty certain that the problem the prof. is writing about is well-known, and controlled for, in the more sophisticated parts of the financial industry. He seems to acknowledge this, but suggests that the industry may be influenced by sloppy academic work. I think he is exaggerating the importance of academic work here: while the industry may look to academe for ideas, it doesn't take them on faith when real money is involved.
[T]he problem...is well-known, and controlled for, in the more sophisticated parts of the financial industry.
Not necessarily. The 'sophistication' of the industry may be limited by experience. If you're a hedge-fund manager, and you have a choice between hiring the guy who made $100M for his clients last year or the guy who has a computer model saying it was just luck, who is he more likely to hire (and consequently, more likely to become the next manager)? I think the financial industry is much less sophisticated than we give them credit for, outside of the technology needed to create sure things by using insider information, hacking government policy, and high frequency trading.
I am writing about a more sophisticated part of the industry than you are. The existence of this element does not invalidate or contradict your comments about the industry in general. The segment that practices insider trading and government hacking is pursuing an approach that owes little, if anything, to economics or econometrics, and so is outside the scope of the prof's comments.
The difficulty in performing controlled tests makes establishing causality difficult. Furthermore, numerical results look so much more certain than vague hand-waving causal explanations.
I am pretty certain that the problem the prof. is writing about is well-known, and controlled for, in the more sophisticated parts of the financial industry. He seems to acknowledge this, but suggests that the industry may be influenced by sloppy academic work. I think he is exaggerating the importance of academic work here: while the industry may look to academe for ideas, it doesn't take them on faith when real money is involved.