Organization of this lecture
• Blending the Philosophies
• Empiricism in Research
• The Scientific Approach
Different philosophies of research are introduced
to illustrate how they contribute to economic
“One’s philosophical beliefs affect one’s choice of
‘legitimate questions’ … as well as one’s choice of
research methods” (George Ladd)
• Each philosophical position has advantages, yet
each has problems. In practice, researchers
tend to use a combination, stressing different
positions for different problems.
• These philosophies stress confirmation rather
than discovery. 3
• Contends that only “factual” knowledge from
observation (the senses) is trustworthy. Stresses
• Logical positivism expands this to include reasoning
and theory as valid means to achieve reliable
• While never a dominant philosophy in economics,
it became influential in the mid-20th century, with
proponents such as Wassily Leontief, Milton
Friedman, and Harry Johnson. John Maynard
Keynes’s father (John Neville Keynes) was an early
proponent in the 1890s 4
• Logical positivists do not believe in the scientific
validity of prescriptive or descriptive knowledge
• Only things which can be directly observed or
measured are considered by positivists as valid
for scientific attention.
• Positivistic knowledge is also culturally
dependent since culture can affect
interpretation of observations
Logical positivism holds that theoretical concepts
are only valid if theory can be quantified. (too
extreme a position for most economists).
• Both facts and theories are seen as sources of
hypotheses – economists embrace this
component of positivism.
• But a problem with positivism is that many
things that are not visible or “concrete” are still
eg. demand relationships can’t be “seen” but are very
real – their characteristics can be estimated.
Logical positivism is not accepted by many
economists, but has had a profound effect on
economic thinking and research.
• It has served to place more emphasis on
measurement and quantification in economics.
eg. new methods in statistics and econometrics
• Also more attention has been focused on values
as being positivistic knowledge, when they are
quantifiable or demonstrable.
eg. What things people value, or how much
they are valued. 7
Positivism has also highlighted the importance of
• In emphasizing the importance of providing
evidence, personal judgments and perceptions
are not accepted as “scientific” information.
• In summary, positivism has had important and
lasting effects on science and economic
research. But it is too limiting a philosophy to
be the dominant philosophy of science.
• A collection of philosophies – emphasizes that
knowledge of the goodness or badness of
conditions, situations, and actions is necessary
to produce prescriptive knowledge (what
“ought “ to be done).
• Normativistic knowledge in economic research
emphasizes people’s values – efficiency,
welfare, income, standard of living, quality of
• Intrinsic values (good and bad) are considered
• However, normativism in economics is not
concerned with moral questions of right and
wrong (but rather good or bad, which is
• Economic choices (the “right choice”) may entail
selecting between several “bad” or unfavorable
• Personal or private values should not be
considered, but rather public knowledge of
values. Emphasis is on objectivity
Objective Normativism refers to the position that
the desirability of a result or outcome can be
known, based on experience or logic.
• Objective normativism accepts that value
knowledge is sometimes essential for
statements about what should be done to
accomplish specific goals or objectives.
eg. “The people of the world are better off
with free trade than with restricted trade”.
• Any discipline that deals with public policy
must use normative value judgements
• Mainly focused on prescriptive knowledge
(what ought to be) and emphasize problem
• Believes that positivistic value-free knowledge
and normativistic value knowledge to be
• “Workability” (appropriateness for the problem
at hand) is the central pragmatic criterion for
• Pragmatism became a prominent philosophical
force in economics research in the 1920s.
• Institutional economics (ie of society’s
institutions) pragmatically focuses on problem
• Test of Workability is the primary test for
reliability of prescriptive knowledge. ie. Is the
Clarity – if solution is not ambiguous or vague
Coherence – if prescription works
Correspondence – if consistent with what we
• Pragmatism plays the greatest role in problem-
solving research, less in subject-matter research
and the least in disciplinary research.
• U.S educational and political systems are
dominated by the philosophy of pragmatism,
which stress problem-solving and workability
How the Philosophies Blend
• Most disciplines have adopted the philosophies
of logical positivism, objective normativism and
pragmatism in some combination.
• Economics is a problem-solving, decision-
oriented discipline by nature. Many different
kinds of problems are addressed, ranging from
simple everyday activities to complex
theoretical problems of cause-effect
The three philosophies – positivism, normativism,
and pragmatism – may all be more or less
important depending on the type of research.
• Disciplinary (and basic theoretical) research focuses on
logical positivism and objective normativism.
• Subject-matter research involves all three
philosophies. The focus is on understanding outcomes
of proposed actions, which leads to guidelines and
• Problem-solving research that addresses particular
management of policy questions for a decision-maker
can be both positivistic (eg. estimating parameters)
and normativistic ( eg. estimating consumer
• All types of research are needed – all are
relevant (in different cases)
• However, some contend that too much
emphasis has been place on disciplinary journal
publishing. This fosters a situation where
economists only communicate with other
economists. And only about theoretical issues.
• On the other hand, most noneconomist users of
economic research want the results to be
intuitively obvious – without understanding of
complexities. This is unrealistic!
Empiricism in Research Methodology
• The influence of logical positivism fostered
interest in measurement or quantification, as
applied to economics.
• Empiricism goes beyond this in subjecting
measurement results to testing. Collecting of
social and economic data led to statistical
methods of analysis, including estimation
• The integration of mathematics with economic
theory led to the development of econometrics.
• Econometrics originated in the early 1900’s
and was augmented tremendously by the
advent of electronic computers.
• It is now considered essential analytical
training for all economists.
• Since it emphasizes empirical data and
measurements it is both positivistic and
• Some leading economists (eg. Leontief) argue
for more empiricism in economics – more
measurement, reliance on data (objective
observation) and quantitative analysis to
improve scientific respectability of economics.
The Scientific Approach
The central scientific methodology (not a single
“scientific method”) has the following general
1) Identify the problem/issue/question
2) Define research objectives
3) Develop approaches for achieving objectives
(including hypotheses of expected outcomes)
4) Conduct the analysis (testing the hypothesis)
5) Interpret the results and draw conclusions
These steps are common to all disciplines 20
• Problem identification is affected by individual
as well as group perceptions – ie. what we
perceive as a problem.
• Objectives, the identified set of specific goals,
are inherently normative, ie. related to our
values and perceptions
• Both problem identification and objective
specification may have a pragmatic
• Laboratory and field sciences tend to see their
research process as producing reliable data,
devoting attention to proper experimental design
to generate statistically valid numbers .
• Social sciences see their process more in terms of
using data to understand relationships and to
address problems requiring decisions.
• Physical and social science disciplines tend to
differ in the last step of interpreting the data.
Economists maintain that normative
interpretation of data is often necessary with
complex social science research.
Deduction and Induction in the
• Usually the approach in economics consists
of the “ongoing interfacing” of deduction and
• Deduction is involved in developing theory
and induction is used in validating or
evaluating the applicability of the theory
through empirical testing.
• Here we are concerned with how deduction
and induction are used, rather than their
relative merits as forms of logic.
• Deductive reasoning starts with premises –
• If the individual premises are true and complete
and the reasoning is correct, the conclusion is
• The most direct application of deductive
reasoning in the scientific approach is in Step
3, developing hypotheses.
• Disciplinary research often involves
developing or modifying theories, leading to
• Theoretical reasoning can include:
– Newly developed theories
– New conceptual elements added to theories
– Modification of existing theories
• In applied research, the reasoning involves
the application of existing theory and
evaluation of expected outcomes.
• Induction is an empirical process of arriving at
new generalities from observations and does
not depend on previous knowledge (ie
• The testing of hypotheses is largely inductive.
• Statistical induction is the process of testing
estimates of parameters or the amount of
variation explained in variables describing
• Induction cannot provide proof of a
proposition because we cannot examine all
possible evidence. We can only describe the
probability of the outcome.
• We cannot say that an outcome or
relationship will always hold – the underlying
cause of the outcome or relationship could
change over time.
• But outcomes based on evidence can have a
• Interpretation of results (step 5) is largely
inductive. In examining implications, we often
extrapolate from the specific analysis to more
eg. A representative firm can be used to reason
through the expected behavior of an industry.
The outcome for the industry can be estimated to
be the outcome for the firm times the number of
• Deduction provides the necessary implications
of premises, which may be general (laws,
axioms, principles) or specific (factual);
induction examines the validity or applicability
of the premises
• Deductive reasoning can organize knowledge
and deduce new relationships but is not
sufficient as a source of new knowledge.
• Inductive reasoning fails to use prior
knowledge, and is therefore inefficient.
• Both deduction and induction are necessary.