Philosphy of Economics

Question 1

What are the scientific goals of economics?

Answer 1

Prediction and explanation

Question 2

Contrast Mill’s and Robbins’ definition of the scope of economics.

Answer 2

Mill’s: Economics seeks to find regularities of social phenomena relating to the pursuit of wealth

Robbins’: Economics studies how people will use the limited resources, which also has many other uses, in the best possible manner for fulfilling their needs

Question 3

What is an as-if interpretation of an idealizing model?

Answer 3

• According to Friedman, the goal of as-if models is to correctly predict phenomena not yet observed.
• One cannot explain individual decisions with models that describe people behaving as if they maximized utility, unless that description is true.
• An as-if model can make good predictions if it describes people’s behavior as if a specific decision process produced it – whether this process is indeed the true process is not a relevant test of the associated hypothesis.

Question 4

What is the main argument of the “Lucas’ critique”?

Answer 4

That it is naive to try to predict the effects of a change in economic policy entirely on the basis of relationships observed in historical data

Question 5

Macroeconomic microfoundations

Answer 5

• By microfoundations, economists describe the view that all problems in the economy as a whole should be modeled as the optimization problems of economic agents in that economy.
• Defenders of microfoundations claim that microfoundations will eliminate the separation between macro- and microeconomics.
• Microfoundations are sometimes criticized because these approaches do not provide the relevant conceptual categories for (macro-)economic problems.