The former is concerned with important variables
unaccounted for - the latter with reciprocal causation, when every
cause is also caused by its own effect.
These are symptoms of an all-pervasive malaise. Economists are simply
not sure what precisely constitutes their subject matter. Is economics
about the construction and testing of models in accordance with certain
basic assumptions? Or should it revolve around the mining of data for
emerging patterns, rules, and "laws"?
On the one hand, patterns based on limited - or, worse, non-recurrent -
sets of data form a questionable foundation for any kind of "science".
On the other hand, models based on assumptions are also in doubt
because they are bound to be replaced by new models with new, hopefully
improved, assumptions.
One way around this apparent quagmire is to put human cognition (i.e.,
psychology) at the heart of economics. Assuming that being human is an
immutable and knowable constant - it should be amenable to scientific
treatment. "Prospect theory", "bounded rationality theories", and the
study of "hindsight bias" as well as other cognitive deficiencies are
the outcomes of this approach.
To qualify as science, economic theory must satisfy the following
cumulative conditions:
a.
Pages:
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25