1 - Methodology

Abstract

This chapter discusses the purpose and methodology of economic theory. Modern views on the place of theory in economics differ partly with respect to the relative importance their proponents attribute to empirical or a priori phenomenon and partly in their proponents' attitude toward the relative effectiveness of empirical and theoretical methodology. The single tradition encompasses three contradictory doctrines: one responses facts without theory, another considers theory for prediction only, and the third regards theory as the object of science. In economics, the idealist views theory as an instrument for the study of value judgments and their application to economic systems. The dominant opinion found in work on economic methodology is that of logical positivism, which states that economics is an empirical science that must be analyzed by logical means to explain events. Nonlinear statistics requires a great deal more data than linear statistics. In fact, nonlinear statistical methods are not widely used in economics, and most empirical investigations are interpreted within a linear framework. Hence, accuracy is sacrificed for simplicity and efficiency in empirical economics.