Philosophical Foundations

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					Philosophical Foundations

         Lecture 4

 Organization of this lecture
Philosophical Foundations:
• Positivism
• Normativism
• Pragmatism
• 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
  about values.
• 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
  problem solved?
   Clarity – if solution is not ambiguous or vague
   Coherence – if prescription works
   Correspondence – if consistent with what we
    already know.
• 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
  (achieving results).

      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
  surpluses)                                            16
• 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
         Scientific Approach
• 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 –
  assumptions .
• 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.


      5                                 2

                4                 3

• Disciplinary research often involves
  developing or modifying theories, leading to
  hypothesized outcomes.
• 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
  specified probability
• Interpretation of results (step 5) is largely
  inductive. In examining implications, we often
  extrapolate from the specific analysis to more
  general applications.
  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.