1. Scientific Method

2. Outline of the lecture 1.Clearly explain what we mean by “science”. 2.Formally introduce the Scientific Method. 3.Discuss how the scientific method applies to social sciences in general and economics in particular. 4.Very briefly discuss how economic methodology has evolved.

3. What do we mean by science? – Not simply a collection of facts and concepts – Not simply a systematic investigation Science is a method of investigating (a subject) – a way of knowing about the subject – that discovers reliable knowledge about it. – There are other methods that help us learn about a subject, but science emphasizes the reliability of what we learn. – Reliable knowledge is knowledge that has a high probability of being true because its truth has been justified by a reliable method. (Is this consistent with the way we do scientific tests?)

4. Why is scientific knowledge reliable? – It relies on empirical evidence Evidence that others can verify Evidence that is repeatable and/or replicable Contrast with hearsay, circumstantial, authoritarian evidence – It relies on logical reasoning Dispassionate (emotions don’t matter0 Objective, not subjective – It is skeptical Constant questioning of beliefs and conclusions Examine and reexamine the evidence, arguments and assumptions.

5. The Scientific Method in Practice 1.Ask a meaningful question about a significant problem. a.Must be able to state it in a way that it is possible to answer. b.Outside factors help shape what is meaningful c.Should be cautious against emotion and culture undermining the reliability of the question (post- modern thought of science as a social or cultural construct, rather than a dispassionate analysis; relativism) 2.Gather relevant information a.Data and observations from previous studies, trials or experience.

6. 3.Propose a solution or answer (the hypothesis) a.Informed b.Testable c.Predictive 4.Test the hypothesis a.Conduct an experiment; or b.Conduct further observations 5.Evaluate the test a.If the hypothesis passes the test, it is corroborated b.If it fails, it is rejected and either abandoned or modified.

7. 6.Construct, support or cast doubt on a theory, and report your results. a.A unifying self-consistent explanation of what you observed and on other corroborating evidence. b.Communicate your results within the context of the existing literature Do we have scientific facts? A scientific fact is a highly corroborated hypothesis that has been so repeatedly tested and for which so much reliable evidence exists that it would be perverse or irrational to deny it. Note, it is not stated as truth.

8. Scientific method in the Social Sciences Can the scientific method carryover to the social sciences, or are there essential differences that make the scientific method inappropriate for social sciences? – Is it that people are just more complex, and hence it is a data problem? – Or are the natures of the disciplines so different to leave the methodology inappropriate? – How hard is it to collect a preponderance of evidence to establish a theory?

9. Scientific method in the context of social science – Success of a theory is measured by its ability to predict phenomenon accurately, and thus control it. Behavior can rarely be accurately predicted or controlled. But after-the-fact explanations can help guide future actions. We can develop general guidelines and expectations that are useful for both purposes – Only that which has been rigorously corroborated is accepted as a fact. But it is hard or impossible to repeat experiments or situations. Is statistical control sufficient?

10. – The last point is what raises the real question about scientific method in social sciences. Assumes in (hard) sciences paths are smooth (and monotonic) towards facts. Ignores often conflicting evidence from different experiments, or different explanations for the same evidence – Nutrition is an example of the former (recent studies have changed what is accepted as good nutrition) – The move from a geocentric to a heliocentric view of the solar system is an example of the latter An economist is different from a biologist, but is the difference in the ability to control and measure the experiment, or in the basic phenomenon being observed?

12. Paradigm shift: A scientific revolution (or paradigm shift) happens when scientists encounter anomalies which cannot be explained by the universally accepted paradigm within which scientific progress has thereto been made. The paradigm is not simply the current theory, but the entire worldview in which it exists, and all of the implications which come with it. It is based on features of landscape of knowledge that scientists can identify around them. There are anomalies for all paradigms.

13. Other paradigm shifts in “hard” sciences – Quantum mechanics replaced classical mechanics – Darwinian natural selection replaced heritability of acquired characteristics in evolution Paradigm shifts in economics – From classical macroeconomics (MV=PQ) to Keynesian economics – From the Phillips curve to the long-run/short-run Phillips curve and the idea of natural rate of unemployment – From Keynesian economics to neo-classical macro (real business cycle theory and the new monetarism) – Slutsky equations (income effects) – Parametric econometrics to non-parametrics to semi- parametrics

14. Changes in Economic Methodology: Three revolutions – Introduction of logical positivism, bringing in empirical grounding. Friedman’s instrumentalism and Samuelson’s mathematical modeling led this revolution. – Rejection of the logical positivism view (led by Kuhn and Popper) demarcating science from non-science by the application of rules requiring replication, and moving towards a more historical analysis. – Rejection of normative and prescriptive economics to a more naturalistic view of economics as an almost biological system. – In macroeconomics the rejection of Keynesian and growth of new monetarism – In microeconomics, the growth of behavioral economics.

15. In class exercise: Break into groups of 3 or 4 Talk about the following observed phenomenon: Low priced wines and liquors advertise more than high priced wines and liquors Within your group, find a relevant research question, develop a hypothesis that addresses that question, discuss a methodology (approach and data) for testing it.