methodology

Question 1

MOST INFLUENTIAL DEFINITION

(NEOCLASSICAL ECONOMICS):

Answer 1

• Economics is the science which studies human
behavior as a relationship between ends and
scarce means which have alternative uses.
- Lionel Robbins, 1932

Question 2

WHY DO ECONOMISTS DISAGREE on Economics definition?

Answer 2

Key idea: Because economics can be
Positive and Normative. Different models
can be used to analyze the same economic
processes.

Question 3

WHAT IS POSITIVE ECONOMICS VIS-AVIS

NORMATIVE ECONOMICS?

Answer 3

• Positive economics =”what is”
The analysis is independent of any particular ethical position or value judgements
• Normative economics=”what ought to be”
The analysis makes use of some value judgement
For example: majority of Karl Marx’s theories;
fairness; policy discussions on inequality issues.

Question 4

What is positive economics?

Answer 4

• Absolute Facts and Cause-and-Effect Relationships
• Description, Theory Development and Theory Testing
• Example: Impose taxes on packs of cigarettes, etc
• TYPICAL EXAMPLE OF A POSITIVE ANALYSIS IN ECONOMICS:
• - Analyzing an influence of taxation on consumers’ and
producers’ decisions;

Question 5

WHY ARE VALUE JUDGEMENTS

IMPORTANT IN ECONOMICS?

Answer 5

Key idea: Because any thoughtful economist should
arguably be concerned with the problem of deciding
whether it is possible, and, if so, whether it is desirable, for
economists not to make value judgments in their analysis

Question 6

IS THERE A DEMARACATION POSITIVE VS

NORMATIVE ECONOMICS?

Answer 6

Key idea: The dichotomy between positive and
normative economics is impossible to make because the
demarcation between value judgments and neutral
scientific assertions is not straightforward.

Question 7

Rationality in decision and game theory;

Answer 7

Why are these theoretical frameworks important to understand
economics?
• What are the differences between decision and game theory ?
• Why are the limits to the ‘principle of rationality’ ?

Question 8

The ‘falsification approach’ of K. Popper

Answer 8

What are the main motivations/justification for the use of this method in
hard science?
• To what extend is this approach appropriate to economics?;
• What are the limits of this approach in social sciences and economics ?
• What are the main consequences of the approach of Popper in the
creation of scientific knowledge?

Question 9

Correlation and causation:

Answer 9

What separates those two concepts?,
• Why is it important to distinguish those two notions in hard and social
sciences?
• Can you give some examples to illustrate these notions in economics ?
• Are there some fundamental differences of how these notions arise in hard
sciences and social science?

Question 10

The different ways to create a scientific knowledge:

Answer 10

What are the Inductive and deductive methods?
• What are the connections/advantages between those two methods?
• Can you give some illustration in economics?
• How and why do these methods may differ between social and hard
sciences?

Question 11

Bounded rationality and evolutionary economics

Answer 11

What are the motivations/justifications for introducing these
approaches in economics ?
• How are these ideas related to the Friedman ‘as if’ principle of
rationality in economics?
• Give some examples/illustrations of these models in economics.

Question 12

EPISTEMOLOGY OF THE SCIENTIFIC

KNOWLEDGE IN A NUTSHELL

Answer 12

Scientific knowledge can be defined as the set of justified

beliefs that are true

Question 13

HOW DO WE PRODUCE A SCIENTIFIC

KNOWLEDGE?

Answer 13

THE INDUCTIVE AND DEDUCTIVE METHODS IN

SCIENCE

Question 14

THE MODERN SCIENTIFIC METHOD

IN A NUTSCHELL

Answer 14

axioms > statement > experience > loop

Question 15

THE INDUCTION METHOD IN A

NUTSCHELL

Answer 15

Induction: 
- AXIOMS, LAWS
AND THEORY
^ ^ ^ ^ ^ ^ ^ ^ ^ 
- STATEMENTS:
PREDICTIONS
^ ^ ^ ^ ^ ^ ^ ^ ^ 
- experimentation

Question 16

THE DEDUCTION METHOD IN A

NUTSCHELL

Answer 16

Deduction: 
- AXIOMS, LAWS (INVENTED BY
inference) 
v v v v v v v v 
- STATEMENTS:
PREDICTIONS
v v v v v v v v 
-EXPERIENCE:
OBSERVED FACTS
and /or STATISTICS

Question 17

POPPER IN A NUTSHELL

Answer 17

• Popper: One must forget the inductive method and replace
  it by the deductive methodology.
• The induction
  method is not based on a rational foundations
• popper rejects induction method

Question 18

POPPER’S NOTION OF

‘FALSIFICATION’

Answer 18

Popper rejects the idea that one can
positively verify or confirm a theory as being
empirically true.
- • Consequence: To be accepted, a good theory is a
theory that must also provide a good explanation of
a phenomenon in addition of being predictive.
- The naïve positivist views of science like the ‘as if’
method of M. Friedman is not tenable: It is impossible
to claim that a theory is true. One can only claim that
a theory is false
- In the Popper methodology, scientific progress means
growth of the empirical content (degrees of possibility
to falsify the theory)
- In science, an explanation is a statement about what is there,
why and how.
• A good scientific theory is one that can be at least in principle
refuted by the evidence. If one cannot even in principle try to
find a counter example, then the theory is not scientific. This is
the case for astrology, wherein you can always vary your
explanation ex post to justify your ‘predictions’.
• In economics, a key challenge is thus to build theories that are
at least in principle falsifiable

Question 19

THE SCIENTIFIC METHOD IN
ECONOMICS AND THE PRINCIPLE OF
RATIONALITY

Answer 19

According to K. Popper (1967), the use of the ‘The
rationality principle’, alone could allow to reproduce the
models of scientific explanation and knowledge creation
achieved in hard sciences .
• As a consequence, the principle of rationality would also
permit to unify the set of all social sciences
- According to Popper’s rationality principle, agents act in the most adequate way according to the objective situation.

Question 20

THE KEY NOTIONS:

The rationality postulate in economics

Answer 20

What do economists postulate on the abilities of agents ?
• Notion of ‘SUBSTANTIVE RATIONALITY’ and ITS USE IN
MICROECONOMICS
• The ‘HOMO ECONOMICUS’ and what does it mean to be
rational in microeconomic theory?

Question 21

What is substantive rationality?

Answer 21

• each economic agents behaviour is derived from maximisation of some goal function( utility, profit), under given contraints and info.

Question 22

individual rationality?

Answer 22

• every indivudal neither intends to promote the public interest, nor knows how much he is promoting it.
• he intends only by his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end to which was no part of his intention.

Question 23

instrumental rationality?

Answer 23

• to solve the encoded problem
• compatible with a maximising interpretation
• decision maker chooses decision for which maximises his utility

Question 24

cognitive rationality?

Answer 24

• allows to frame the decision problem in its context.

Question 25

Friedman’s positive approach to economics?

Answer 25

• Friedman’s thesis is that the goals of a positive
  science are predictive, not at all explanatory (1953, p.
  7).
  • Friedman’s view of science is purely instrumental i.e.,
  the only purpose of science is to make predictions.
  A positive approach in economics is the statement is
  that human beings behave as if they were rational.
  So, a key question is whether one can actually come
  to an empirical conclusion: Can we experimentally
  reject the assumption of a rational from an irrational
  behavior ?