A note on methodology

This is a meta-economics post, dealing primarily with the question whether a particular bit of economics can be considered to be good science. This discussion on methodology will, in turn cover the underlying philosophy of deductivism, positivism, predictionism, and the eclectic.


Economics is concerned with the study of man making choices among alternatives with the constraint of scarce resources. This idea could serve as a benchmark to answer the question posed at the beginning.


The deductivist method centers around the idea that the economy is an extremely complicated network of causal factors influencing economic phenomena, in which individual causal factors are impossible to isolate, eliminating he possibility of experimentation. Deductivists claim that the only way to study such subject matter is to first establish basic psychological laws and deduce their economic implications while specifying the relevant circumstances. Empirical testing plays a major role in the process by validating the deductions or pointing out whether significant causal factors have been left out. Economics is, and will remain, however, an inexact science again due to the fact that individual causal factors cannot be 'untangled' in any controlled experiment. The inexact premises of such an axiomatic system, also create problems when the consequences are to be empirically validated.

This methodology could therefore still use more structure. An axiomatic system in which the axioms (and subsequent deductions) can never be empirically verified does not provide sufficient grounds for falsification which is an essential component of any science. Theories are propounded but dissatisfaction with theories lead to their empirical falsification and get replaced by new theories that stand the test of falsification. In the present case however one can always hide behind the veil of extraneous factors leading to unfalsifiable theories.

Many have pointed out that this is too stringent a philosophy to impose on social sciences in general and economics in particular.

So on the one hand we have an unfalsifiable science and on the other a methodology which is too stringent to be applied to economics. The predictionists seemed to have the answer when they claimed that the goals of a positive science are entirely predictive. This methodology removes the restrictions that assumptions need to be realistic as long as the predictive power if the theory is not compromised. This leads to deductions that are theoretically falsifiable, however a problem remains with the nature of the assumptions made since the process of theory modification becomes hopelessly inefficient.

The eclectic methodology talks about the non-comparability of any two distinct methodologies and that theories can only be judged in isolation.

I am personally partial towards the deductivist methodology and despite the issues relating to empirical validation, I believe that the solution lies not with the methodology but with further developments in the empirical science. Better data, different testing procedures. Makes you wonder if economic theory will ever become water-tight.