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Bereket Kebede School of International Development University of East Anglia London (UEA London) 10 December 2011 10:00 a.m. – 5:00 p.m.

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Presentation on theme: "Bereket Kebede School of International Development University of East Anglia London (UEA London) 10 December 2011 10:00 a.m. – 5:00 p.m."— Presentation transcript:

1 Bereket Kebede School of International Development University of East Anglia London (UEA London) 10 December :00 a.m. – 5:00 p.m.

2  1.An excursion into a history of economics 2.Dominant epistemologies 3.Mathematics and formalism 4.Observational data and econometrics 5.Experimental methods Outline

3   Publication of A. Smith’s Wealth of Nations in 1776 (‘birth of economics’) and subsequent classical economists (Ricardo, Malthus, Marx, Mill, etc.)  Economics was not yet a really distinctive and unified discipline (political economy, moral philosophy, etc.)  The marginalist revolution and the rise of neo- classical economics (Jevons, Menger, Walras, Marshall) – dominant school after end of 19 th century 1. An excursion into a history of economics

4   Economics as we know it, based on neoclassical school, emerged after WWII (the ‘formalist revolution’)  Hick, Value and Capital (1939)  Samuelson, Foundations of Economic Analysis (1947)  Arrow, Social Choice and Individual Values (1951)  von Neumann and Morgenstern, Theory of Games and Economic Behaviour (1953)  Debreu, Theory of Value (1959) 1. An excursion into a history of economics (cont’d)

5   With the dominance of modern conventional economics, issues of methodology and epistemology were left in the background  Economic epistemologists (philosopher rather than economists) separate from standard economists  Recent revival of interest in epistemological and philosophical problems of economics  Development economics : a separate discipline or a branch of main stream economics? 1. An excursion into a history of economics (cont’d)

6   Positivism : the application of methods of natural sciences to the study of social reality (Bryman, 2004)  Phenomenalism : knowledge confirmed by the senses can genuinely be warranted  Deductivism : theory to generate testable hypotheses to identify laws; e.g., economic theory  Inductivism : gathering of facts to provide basis for laws; e.g., survey data and econometrics  Objective : science should be conducted as value free  Positive vs. normative : the latter prescriptive; e.g., efficiency vs. income distribution 2. Dominant epistemologies

7   Post-positivism : knowledge based on probabilistic propositions rather than certainty; approximate truth; the ‘uncertainty principle’  Methodological individualism – both an organising strategy for neoclassical economics and an ontological commitment  Recent interest in alternative epistemological approaches in economics: e.g., Lavoie, ed., Economics and Hermeneutics 2. Dominant epistemologies (cont’d)

8  “Those who have handled sciences have been either men of experiment or men of dogmas. The men of experiment are like the ant, they only collect and use; the reasoners resemble spiders, who make cobwebs out of their own substance. But the bee takes a middle course: it gathers its material from flowers of the garden and of the field, but transforms and digests it by a power of its own … Therefore from a closer and purer league between these two faculties, the experimental and the rational (such as has never yet been made), much may be hoped.” Francis Bacon, Mathematics and formalism

9   The reasoners/spiders/theoretical economists? – use simplified and formal models  The bees/empirical economists? – use mainly econometrics to analyse data testing theories  (Wo)Men of experiments/experimentalists? – both random controlled trials (RCTs) and experimental economics 3. Mathematics and formalism (cont’d)

10   Modern mainstream theoretical economics uses simplified, abstract, formal mathematical models  Starting from simple axioms and assumptions builds an internally consistent logical system  Theoretical models are understood as simplified representations of important real economic relationships  Idealisation as a price worth paying to understand important economic relationships (ontological problem?) 3. Mathematics and formalism (cont’d)

11   “Ultra-empiricism”- postulates, assumptions, axioms and basic principles in economic models should be testable  Friedman (1953) – “ultra-empiricism” would eliminate much useful theorising  Basic assumptions of theoretical models neither should be true nor testable  Usefulness of models depends on predictive reliability (pragmatism, instrumentalism, indirect empiricism)  Judged on fit with parallel theorising 3. Mathematics and formalism (cont’d)

12   Formalism : an approach (mathematical or otherwise) to theorising that aims at making explicit the logical structure of a theory; set-theoretic formalism widely accepted in economic theory  Formal models as simplified representation of economic reality; also remember Friedman  Formal models as training tools; improves perception and analytical skills of economists 3. Mathematics and formalism (cont’d)

13   Formalism and mathematics still important in recent critiques of conventional economics  New Institutional Economics : instead of individual agency the role of institutions emphasised; a dominant part of the school retains and prioritises formalistic methods  Behavioural Economics : using insights from psychology, relaxes the assumption of the hyper-rational economic agent of conventional economics; mostly widened the scope of formal economic models 3. Mathematics and formalism (cont’d)

14   Complexity and computational economics : economic interactions are too complicated for capturing in neat closed models  E.g., agent-based computational economics : economies as dynamic systems of interacting agents; agents can range from active data-gathering decision-makers with sophisticated learning capabilities or as passive with no cognitive functioning  Difficult to analytically solve the outcome of these complex interactions; left for computer algorithms including artificial intelligence 3. Mathematics and formalism (cont’d)

15   Most empirical analysis in economics in general and development economics in particular uses observational rather than experimental data – need for quasi- experimental method, mainly econometrics  ‘Recreating’ an experimental set-up without experimental data – controlling for confounding variables and orthogonal residuals 4. Observational data and econometrics

16   Tension between theory-led and data-led econometrics (the LSE school); difference on how knowledge is to be attained rather than ontological differences in economic entities  Single econometric tests rarely make significant changes; accumulated weight of evidence is required to bring paradigm shift (a la Lakatos) 4. Observational data and econometrics (cont’d)

17   Economics considered as non-experimental discipline at least until the 1980s  Recent trends:  Randomised control trials (RCTs) : identifying project/treatment effects by randomising interventions  Lab experiments (experimental games) : ‘players’ making decision under incentivised and controlled situation (laboratory) 5. Experimental methods

18   Increasing interest in the epistemology of experimental economics (e.g., Santos, 2010)  The social epistemology of experiment (SEE) :  Experimental facts generated through material and social processes  Material processes: ‘ phenomenal model’ (experimenter’s view of how the world works), ‘instrumental model’ (view on how the experimental apparatus works), ‘material procedure’ (actually how the experimental apparatus works)  Social processes: the experimental subjects and the experimentalist 5. Experimental methods (cont’d)

19   The direct participation of human subjects is the major source of epistemic value; but participants may ‘resist’ expectations of economists  Experimental games are amenable to scrutiny by wide audience  SEE pays special attention to scientists predisposition to obtain confirmation of prior beliefs (‘confirmation bias’) 5. Experimental methods (cont’d)

20   Boettke, Peter J.; Christopher J. Coyne; John Davis; Francesco Guala; Alain Marciano; Jochen Runde and Margaret Schabas "Where Economics and Philosophy Meet: Review of the Elgar Companion to Economics and Philosophy with Responses from the Authors." Economic Journal, 116(June), F306-F25.  Bryman, Alan Social Research Methods. Oxford: Oxford University Press.  Davis, John B.; Alain Marciano and Jochen Runde eds The Elgar Companion of Economics and Philosophy. Cheltenham, UK, Northampton, MA, USA: Edward Elgar.  Friedman, Milton Essays in Positive Economics - the Methodology of Positive Economics. Chicago: University of Chicago Press. References

21   Hoover, Kevin D "The Methodology of Econometrics," T. C. Mills and K. Patterson, Palgrave Handbook of Econometrics: Econometric Theory: Econometric Theory. New York: Palgrave Macmillan,  Hoover, Kevin D "Pragmatism, Perspecitval Realism and Econometrics," Durham, NC: Duke University,  Lavoie, Don ed Economics and Hermeneutics. London and New York: Routledge.  Sagal, Paul T "Epistemology in Economics." Journal for General Philosophy of Science, 8(1),  Santos, Ana Cordeira dos The Social Epistemology of Experimental Economics. London and New York: Routledge. References

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