Falsificationism about Economics

Social science employs teleological explanations which depend upon the rationality principle, according to which people exhibit instrumental rationality. Popper points out that people also exhibit critical rationality, the tendency to stand back from, and to question or criticise, their views. I explain how our critical rationality impugns the explanatory value of the rationality principle and thereby threatens the very possibility of social science. I discuss the relationship between instrumental and critical rationality and show how we can reconcile our critical rationality (...) with the possibility of social science if we invoke Popper’s conception of limited rationality and his indeterminism. (shrink)

The paper applies confirmation theory to a famous statement of economics, the law of demand, which says that ceteris paribus, prices and quantities demanded change in opposite directions. Today's economists do not accept the law unless definite restrictions hold, and have shown little interest in deciding whether or not these restrictions were satisfied empirically. However, Hildenbrand (1994) has provided a new derivation of the law of aggregate demand and used this theoretical advance to devise a test that may be the (...) first rigorous one ever performed on the law. The paper accounts for Hildenbrand's and, in less detail, his predecessors' contributions within the philosophical framework of Hempel (1965) and Glymour (1980). Its salient result is that economists have accepted the "consequence condition", and rejected the "converse consequence condition", and thus implicitly adhered to a Hempelian- Glymourian view of confirmation and testability. (shrink)

Abstract: This paper examines Mark Blaug's position on the normative character of Paretian welfare economics: in general, and specifically with respect to his debate with Pieter Hennipman over this question during the 1990s. The paper also clarifies some of the confusions that emerged within the context of this debate, and closes by providing some additional arguments supporting Blaug's position that he himself did not provide.

This book brings together ten previously published essays on the philosophy of economics and economic methodology. The general theme is the application of Karl Popper's philosophy of science to economics -- not only by Popper himself but also by other members of the "Popperian school." There are three major issues that surface repeatedly: the applicability of Popper's falsificationist philosophy of science; the applicability of I. Lakatos's "methodology of scientific research programs" to economics; and the question of Popper's "situational analysis" approach (...) to social science. (shrink)

As made manifest by Clower's comments on their “science fiction” nature, general equilibrium theories present such peculiar and puzzling features that the methodologist must perforce seek some specific methodological accommodation for this part of economic theory. The role played by such theories in contemporary economics is so fundamental that the impossibility of appraising them by means of any version of falsificationism, and their patent lack of empirical content if approached with the conceptual devices of the methodology of scientific research programs, (...) have prompted several scholars interested in the methodology of economics to search for a reasonable way out. (shrink)

Popper's well-known demarcation criterion has often been understood to distinguish statements of empirical science according to their logical form. Implicit in this interpretation of Popper's philosophy is the belief that when the universe of discourse of the empirical scientist is infinite, empirical universal sentences are falsifiable but not verifiable, whereas the converse holds for existential sentences. A remarkable elaboration of this belief is to be found in Watkins's early work on the statements he calls “all-and-some,” such as: “For every metal (...) there is a melting point.” All-and-some statements are both universally and existentially quantified in that order. Watkins argued that AS should be regarded as both nonfalsifiable and nonverifiable, for they partake in the logical fate of both universal and existential statements. This claim is subject to the proviso that the bound variables are “uncircumscribed” ; i.e., that the universe of discourse is infinite. (shrink)

Mark Blaug’s normative methodology of economics is an attempt to articulate certain intuitions about how economic science could be improved by making it more “realistic”. I discuss two such articulations, one in terms of falsificationist principles, the other in terms of an alleged trade-off between relevance and mathematical rigour. My conclusion is that Blaug’s methodology is itself unrealistic, both descriptively and normatively. His (well intended) methodological prescriptions for the improvement of economics are not based on a systematic, consistent, descriptively adequate, (...) and normatively viable account. I suggest that Blaug’s intuitions can be developed into a more realistic account by incorporating the analysis of two further topics: economic modelling and the institutions of academic research. (shrink)

Milton Friedman's famous methodological essay contains, along with much else, some strands that look as though they were taken from the “empirical-scientific” fabric described by Karl Popper. Think, for example, of Friedman's conviction that the way to test a hypothesis is to compare its implications with experience. Or of his more or less explicit espousal of the view that while no amount of facts can ever prove a hypothesis true, a single “fact” may refute it. Or of his assertion that (...) hypotheses are to be accepted only as provisionally true, and then only after repeated efforts to refute them have failed. The appearance of these Popperian ideas is not surprising. (shrink)

David Hume’s Treatise on Human Nature famously fell `deadborn from the press’ because it was too far ahead of its time. Basu’s book is one of a number published in recent years that suggest we are at last ready to put its precepts into action.1 Modern game theory provides a framework that makes Hume’s insights genuinely applicable, and I totaly agree with Basu that this is not only the right way forward, but that it now looksincreasingly likely that this is (...) the road that wil actualy be folowed ± not only in political economy, but across the board in the social sciences. (shrink)

Even if falsificationism in the strict Popper-Lakatos sense may be too harsh for economics, falsifiability and refutability are eminent criteria for theory appraisal. Hausman's (1997) revision of his (1992) methodology of economics does not come sufficiently close to meeting such a methodological requirement and risks allowing the prioritising of irrefutable theories over empirical phenomena. It therefore needs further advancement.

Economics today cannot predict the likely outcome of specific events any better than it could in the time of Adam Smith. This is Alexander Rosenberg's controversial challenge to the scientific status of economics. Rosenberg explains that the defining characteristic of any science is predictive improvability--the capacity to create more precise forecasts by evaluating the success of earlier predictions--and he forcefully argues that because economics has not been able to increase its predictive power for over two centuries, it is not a (...) science. (shrink)

The paper criticises psychologism, i.e. the idea that economics is a science of behaviour or that it must be rooted in such a science. The argument is based on Hayek and Popper's thesis that economics studies spontaneous order. First, it is argued that if economics is to retain its traditional distance from psychology, it has to abandon the notion that it is concerned with behaviour. Then it is shown that there is no simple one-way causation from the psychological to the (...) social and that the study of spontaneous order must be non-psychological. Further, an attempt is made to clarify some misunderstandings about the concept of spontaneous order and the differences between psychologism and methodological individualism. Finally, it is suggested that the difference between the psychological and the social can be described conveniently in Popperian terms as the difference between the ?World 2? and ?World 3? phenomena. (shrink)

The paper is a reminiscence of T.W. Hutchison by way of a retrospective view of our debate over the relationship between the ideas of Karl Popper, F. A. Hayek, and Ludwig von Mises on methodology. Our dispute was part of a larger debate over the relevance of Popper's thought for economic methodology. Its place within the larger debate is also explored.

logical failure or contradiction by a fact. Intuition alone can decide between two competing theories agreeing with the facts. (ibid. ...

Until quite recently, some economic methodologists (particularly, those who began their careers in the late 1970s) were of the opinion that Karl Popper was misguided about economics. Some others claimed that Popper said little about economics. Yet, many economics students who began their appreciation of Popper after reading his Open Society and Its Enemies have quickly realized how easy that book is to understand because it is a generalization of neoclassical economics in terms of both methodological individualism and situational analysis. (...) While today it might be easy to complain that basing one's understanding of Popper on neoclassical economics leads to a narrow and useless appreciation of Popper, this too is misleading. The problem is not neoclassical economics but neoclassical economists. After all, Popper himself thought the best way to teach economists about his views concerning methodology was to emphasize that his views can easily be understood as a generalization of neoclassical economics. (shrink)

The pigeonholing of Hutchison's methodology as positivist, ultra-empiricist or Popperian has militated against a full appreciation of his more complex position. In this as-verbatim-as-possible account of an afternoon's discussion with Hutchison, it is the directly personal manner in which we gain insights, rather than simply the insights themselves, that we hope will help towards a re-assessment. We learn of his non-positivist view that economics is an empirical-historical discipline distinct from the natural sciences; and his rejection of Popper's view that prediction (...) in economics can and should be based on laws like the law of gravity. We hear of his wariness of relying on the hypothetico-deductivist methods of Popper and later positivists in a subject such as economics, and his support instead for the methodological views of Jacob Viner and the inductive methods associated with the historically and institutionally detailed approaches of Cliffe Leslie, Wesley Clair Mitchell and Henry Phelps Brown. (shrink)

Terence Hutchison's 1938 essay has been variously interpreted as introducing positivism, ultra?empiricism and Popperian falsificationism into economics. This paper argues that such interpretations are unfair and inaccurate. Moreover, they distract from his central message. The paper is divided into three main sections. The first seeks to demonstrate the extent to which Hutchison's essay differs from these previous interpretations. The second argues that Hutchison's central concern was to highlight and demonstrate the inadequacies of the traditional deductive method of?classical? economics. The third (...) contends that Hutchison is best interpreted as following in a long line of British empiricists and outlines some features of the?empirical?inductive? approach that he supports. (shrink)

While there exist numerous applications of Kuhn's analysis of scientific revolutions to economics, there is yet to be an application to econometrics. The present paper addresses this via an analysis of the often-documented transition between the textbook and LSE methodologies witnessed in British time series econometrics. This exercise allows a number of issues to be raised. First, it will be questioned whether the observed transition in econometrics is an appropriate subject for analysis within the Kuhnian framework. This is the primary (...) concern of the paper. Second, the adoption of Kuhn's approach will allow the witnessed transition in econometric methodology to be viewed from a different perspective to that permitted by more conventional historical accounts. This is seen to lead a number of interesting conclusions. Third, implications of the present study for Kuhn's analysis will be discussed. (shrink)

In a recent article, Cook conducted a Kuhnian analysis of the difference between the Textbook and LSE econometric approaches. This paper uses a semantic conception of theories (Suppe 1989) and a finer gradation of the theory of reduction process to clarify the apparent puzzle that exist between the Textbook and LSE approaches to econometrics. The paper demonstrates that a Kuhnian analysis in isolation can be more misleading than realized.

Understanding the factors determining economic growth has been a major concern for economists and governing bodies for many years. The Solow growth model and the endogenous growth models are the main theories tested and used in the growth literature. This paper discusses the main contributions to economic methodology and uses Lakatos's scientific research program framework to evaluate the main theoretical contributions to growth theory. Based on Lakatos's ideas, Solovian models are both empirically and theoretically progressive. Endogenous growth models, on the (...) other hand, are not empirically corroborated, and thus not progressive in Lakatosian sense. However, there are many reasons for rational growth economists to continue working in this field, even facing empirical refutations of an important theoretical prediction. Endogenous growth models are promising in terms of generating enormous gains that will help us better understand the mechanisms of economic growth. (shrink)

In a recent paper, Cavusoglu and Tebaldi provided an evaluation of neoclassical and endogenous growth theories according to Lakatos's methodology of scientific research programmes. This paper offers three criticisms of their contribution as well as a rival Lakatosian appraisal of growth theories. First, we hold that Cavusoglu and Tebaldi do not provide a proper structure of theory comparison in their contribution. Second, we argue that they use an inadequate version of Lakatos's appraisal criterion. Third, against the claim of the authors, (...) we show that there are seminal endogenous growth models, which predict income convergence among countries. Finally, in contrast to Cavusoglu and Tebaldi, our analysis suggests that by Lakatos's standards, Schumpeterian variant of endogenous growth theory is both theoretically and empirically progressive over neoclassical growth theory. (shrink)

Hutchison's 1938 essay has been mainly interpreted as introducing positivism and ultra-empiricism into economics. Such interpretations misrepresent his position. While he clearly drew on logical positivism, his methodology stems from a more moderate form of empiricism. However the issue at stake is not the exact degree of Hutchison's empiricism, but rather the extent to which such negative labelling has trivialised his position and distracted attention from the main concern of his 1938 essay. This was to mount a sustained and systematic (...) criticism of the traditional abstract-deductive method in economics. In its place Hutchison sought to promote a more empirical, inductive approach. The paper is concerned with demonstrating the extent to which Machlup failed to provide evidence of Hutchison's ultra-empiricism. It thereby seeks to clear the way towards a reappraisal of Hutchison's methodology and towards a reappraisal of its relevance in our post-positivist era. (shrink)

The person arguably most responsible for the view of Hutchison as the positivist who introduced positivism into economics was Frank Knight. I argue that Knight in 1940 failed to demonstrate that Hutchison was a positivist, at least in the narrow logical positivist sense of the term. By questioning Knight's charge, I aim to challenge the conventional wisdom that identifies?Hutchison? with?positivism?. The paper is then a first step in the argument that positivism, even in 1938, played only an inessential role in (...) a consistent methodological position that Hutchison developed alongside his work in the history of economic thought. (shrink)

Milton Friedman’s 1953 essay created controversy and consternation amongst economists. It provided a prescription, based on empirically generated predictive success, of how to do economics, yet many saw it as a concession of the search for truth and theoretical beauty within the discipline. This article reviews a 50th anniversary festschrift devoted to views of the essay. The purpose of the volume is to provide today’s reader with the essay, responses, and a guide to interpreting it. The volume is selective and (...) several contributors have their own agendas, but the feeling of tumult the essay still engenders is nicely conveyed. (shrink)

Hutchison's 1938 essay has been variously interpreted as introducing positivism, ultra-empiricism and Popperian falsificationism to economics. Yet his apparent inconsistency in maintaining all of these positions seems to have gone unnoticed in the literature. Previously I have criticized attempts to characterize Hutchison as a positivist or ultra-empiricist. In this article I argue that Klappholz and Agassi failed to support their claim that Hutchison introduced Popper's criterion to economics. That is, this paper deals with this specific question, rather than the wider (...) one of whether or not Hutchison introduced Popperian falsificationism to economics. Yet the two issues are closely connected and so the latter question is briefly discussed. To the extent that the paper succeeds, it may help to resolve the inconsistency problem. For now it is possible that Hutchison in 1938 developed his own original and consistent position. The task of substantiating such a view by providing a positive account of his methodology is one for the future. (shrink)

Ever since the formation of the field of economic methodology in the 1990s, doubts have been raised about its discursive closure from both inside and outside the field. Rather than embarking on a programmatic discussion, I present a historical narrative regarding the conditions of the formation of the field, which may have necessitated this closure. These conditions are found in the role methodological reflections played in the formalist revolution of the 1950s and in its critique in the 1970s. Both episodes (...) gave occasion to, but did not require the import of philosophy of science in the mid-1970s. Since the 1980s, when the field became separately established through post-Popperian methodology, it remains an open question whether this imposition still holds. (shrink)

Do the insights into human behavior generated by laboratory experiments hold outside the lab? This is a crucial question that naturally troubles both experimentalists and their critics. We address this question by adopting Popper's injunction that hypotheses should be tested, not by seeking instances of confirmation, but through exposure to conditions where falsification is a serious possibility. We test the hypothesis ?that experimental insights hold outside the lab? by selecting a population where the non-experimental evidence points to behavior that is (...) quite unlike what is typically found in the laboratory and we examine whether their experimental results track these untypical behaviors. In our case, they do. (shrink)

Discussions of Karl Popper's falsificationist philosophy of science appear regularly in the recent literature on economic methodology. In this literature, there seem to be two fundamental points of agreement about Popper. First, most economists take Popper's falsificationist method of bold conjecture and severe test to be the correct characterization of scientific conduct in the physical sciences. Second, most economists admit that economic theory fails miserably when judged by these same falsificationist standards. As Latsis states, “the development of economic analysis would (...) look a dismal affair through falsificationist spectacles.”. (shrink)

The article discusses Friedman's classic claim that economics can be based on irrealistic assumptions. It exploits Samuelson's distinction between two "F-twists" (that is, "it is an advantage for an economic theory to use irrealistic assumptions" vs "the more irrealistic the assumptions, the better the economic theory"), as well as Nagel's distinction between three philosophy-of-science construals of the basic claim. On examination, only one of Nagel's construals seems promising enough. It involves the neo-positivistic distinction between theoretical and non-theoretical ("observable") terms; so (...) Friedman would in some sense argue for the major role of theoretical terms in economics. The paper uses a model-theoretic apparatus to refine the selected construal and check whether it can be made to support the claim. This inquiry leads to essentially negative results for both F-twists, and the final conclusion is that they are left unsupported. (shrink)

A rejoinder to commentators of the paper by P. Mongin, "Le réalisme des hypothèses et la "Partial Interpretation View"", Philosophy of the Social Sciences, 18, 1988, p. 281-325. (This paper is listed and made available by Philpapers.).

The central argument of this interesting paper is that Popper appears to be inconsistent: on the one hand, he preaches methodological monism-scientific method in the social sciences is identical to scientific method in the natural sciences-and on the other hand he advocates “situational analysis” as the unique method of the social sciences. Situational analysis is nothing but our old neoclassical friend, the rationality principle-individual maximizing behavior subject to constraints-and thus, Popper seems to be saying, neoclassical economics is the only valid (...) kind of social science. (shrink)