Statistical Inference in Economics, 1920-1965: Changes in Meaning and Practice

Abstract

This paper reviews changes over time in the meaning that economists in the US attributed to the phrase “statistical inference”, as well as changes in how inference was conducted. Prior to WWII, leading statistical economists rejected probability theory as a source of measures and procedures to be used in statistical inference. Haavelmo and the econometricians associated with the early Cowles Commission developed an approach to statistical inference based on concepts and measures derived from probability theory, but the arguments they offered in defense of this approach were not always responsive to the concerns of earlier empirical economists that the data available to economists did not satisfy the assumptions required for such an approach. Despite this, after a period of about 25 years, a consensus developed that methods of inference derived from probability theory were an almost essential part of empirical research in economics. I close the paper with some speculation on possible reasons for this transformation in thinking about statistical inference.