Means Of Evaluating Economic Ideas

25 means of evaluating economic ideas, arguments, evidenceΨ 1. 2. 3. 4. 5. 6.

The evidence is mixed and contradictory. The results of the theory are not robust to variations in the assumptions. The theory omits important factors which have an impact on relevant outcomes. The evidence is largely correlational or anecdotal and fails to control for relevant variables. The theory is inconsistent with (some of) the stylized facts. The assumptions underlying the theory are so far at variance with reality that the application to reality is strained. 7. The theory is ambiguous in its implications for the relevant phenomena and therefore the evidence does not constitute a proper test of the theory. 8. The econometric evidence is cross sectional (time series), and time series (cross sectional) evidence might (does) carry different implications. 9. The theory is silent on important aspects of the phenomena under consideration. 10. The theory requires maximising behaviour and (in these circumstances) that assumption might be unrealistic, especially with regard to opportunities for learning, out of equilibrium outcomes & c. 11. The proposed solution to the relevant problem has unintended undesirable consequences. 12. The proposed solution to the problem is a second- or third-best solution. 13. There are more efficient means of achieving the key objective(s). 14. The proposed solution fails to take account of equity considerations, third party spillover effects &c. 15. The evidence might be unreliable because it is drawn from too narrow a time frame, too narrow a selection of countries or economies &c. 16. The econometric formulation is ad hoc in that it incorporates independent variables which are not properly elements of the theory under consideration. 17. There is a problem of systematic error or mismeasurement in the definition and collection of the dependent or independent variables. 18. The theory requires rational expectations and it is not clear whether agents have such expectations. 19. The theory requires adaptive expectations, and such an expectations formation scheme is not rational. 20. There is an alternative interpretation of the evidence, an interpretation consistent with (some or all of) the observed facts but inconsistent with the theory. 21. The theory pays insufficient attention to the role of institutions, the legal infrastructure, uncertainty, risk, customary behaviour, norms of behaviour & c. 22. The theory is a partial equilibrium account and the results (may not) do not carry over to a general equilibrium setting. 23. The suggested policy problem is not a problem at all, merely a necessary or inevitable or even desirable accompaniment to the ordinary operation of markets, capitalism, society & c. 24. A longer view of history yields a different interpretation. 25. It’s all in Smith, Marshall, Keynes, Pigou, Schumpeter, Robinson, Samuelson etc. … Old wine in new bottles.

smb, May 2002

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For more and better see George Stigler (1977) “The Conference Handbook”, Journal of Political Economy, 85, 2, 441-443 and a beautiful extended variation on Stigler’s Theme in Richard H. Thaler (1986) “The Psychology and Economics Conference handbook: comments on Simon, on Einhorn and Hogarth, and on Tversky and Kahneman”, Journal of Business, 59, 4, 279-285.