The Scientific Method
Any subject can be a science if it uses the scientific method. This involves the following:
- Observation and measurement of data
- Analysing the data to discover underlying patterns and relationships between variables
- Where consistent relationships are observed between variables, formulating a hypothesis
In physics an example would be how the pressure of a gas of a given mass and at a constant temperature varies with changes in volume. The hypothesis that pressure changes in inverse proportion to volume can be tested by experiment and observation. Where the hypothesis is confirmed (verified) on many occasions, without ever being refuted(shown not to be true), it is regarded as a scientific law.
Economics is a social science because it attempts to use the scientific method and apply it to the study of certain aspects of human behaviour, in particular how societies organise themselves to provide for their material wants.
There are several difficulties in applying the scientific method to the study of economics:
- Difficulties in carrying out experiments under controlled conditions to test a hypothesis. We cannot study economic behaviour in a laboratory. This makes it hard to establish clear cause and effect relationships.
- Economic data is often incomplete, inaccurate or difficult to measure. For instance, GDP and unemployment data are based on estimates.
- Human behaviour is unpredictable and subject to change. This makes it very difficult, for instance to predict how changes in consumer confidence might affect saving or spending.
As a result of these difficulties, economics is more concerned probability statements than cast iron laws. Predictions about future growth or inflation, for instance are unlikely to be completely accurate.
Modelling
Economists try to build a theoretical ‘model’ of how the economy works. A model is really a set of assumptions, based on observation and measurement of the behaviour of economic variables (rate of inflation, growth rate, unemployment, etc) and how they change in relation to each other.
The purpose of the model is to make predictions about the future course of the economy, and also to allow policy makers to find ways of improving economic performance.
Partial models focus on one aspect of the economy, such as the housing or labour markets. They are called micro-economic models. Such models can be used, for instance, to explain why footballers get paid more than most other sport professionals, or why houses cost more in London than Liverpool.
Economists concerned with the workings of the whole economy are interested in building a macro-economic model, which can be used to help the government manage the economy to achieve goals such as higher growth, lower inflation or a reduction in poverty.
In developing a model, economists have to make certain simplifying assumptions. This is because in the real world any one economic variable is likely to be affected simultaneously by a number of others. To make this problem manageable, economists often use the __ceteris paribus __assumption, that means ‘all other things remain unchanged’. A simple example of this is in price theory, where we can examine the relationship between price and quantity demanded by assuming that the other factors that affect demand, such as income, the price of other goods and so on, are unchanged.
Because economics is a social science, economists need to understand the motivesthat govern people’s economic behaviour. Economists have relied on the so called ‘hom*o economicus’ assumption; - that individuals are rational and always act to maximise their economic self-interest___. ___This assumption can be used to explain the behaviour of firms (as profit maximisers) and consumers (as utility maximisers).
As a science, economics is concerned with factual __statements. These are statements that can be shown to be __true __or __false __by looking at the evidence. Such statements are called __positive statements.
Drawing from my extensive expertise in scientific methodology and economics, let's delve into the concepts presented in the article about the scientific method and its application in economics.
Scientific Method: The scientific method is a systematic approach to investigating natural phenomena, and any subject can be considered a science if it adheres to this method. It involves:
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Observation and Measurement of Data: This is the initial step where data is collected through systematic observation and measurement. In the context of physics, an example is measuring the pressure of a gas under various conditions.
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Analysis of Data: The collected data is analyzed to uncover patterns and relationships between variables. This step is crucial for formulating hypotheses.
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Formulating Hypothesis: Based on observed patterns, a hypothesis is formulated. In physics, the example is the hypothesis that pressure changes inversely with volume.
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Experimentation and Observation: The formulated hypothesis is tested through controlled experiments and observations.
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Scientific Law: If the hypothesis is consistently confirmed without being refuted, it is elevated to the status of a scientific law.
Application of Scientific Method in Economics: Economics, being a social science, faces unique challenges in applying the scientific method:
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Experimental Challenges: Unlike natural sciences, it's difficult to carry out experiments in controlled conditions in economics. Economic behavior cannot be studied in a laboratory, making it challenging to establish clear cause-and-effect relationships.
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Incomplete and Inaccurate Data: Economic data, such as GDP and unemployment, is often incomplete, inaccurate, or difficult to measure, leading to challenges in making precise predictions.
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Unpredictable Human Behavior: Human behavior, a central focus in economics, is inherently unpredictable and subject to change. This unpredictability makes it difficult to accurately predict the impact of changes in variables like consumer confidence.
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Probability Statements in Economics: Due to these challenges, economics relies more on probability statements than on cast-iron laws. Predictions about future economic events, like growth or inflation, are likely to be statements of probability rather than certainties.
Modeling in Economics: Economists use models to understand and predict economic phenomena:
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Micro-economic Models: Focus on specific aspects of the economy, such as housing or labor markets. These models can explain phenomena like income differentials in professional sports or regional variations in housing prices.
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Macro-economic Models: Aim to understand the functioning of the entire economy. These models assist policymakers in managing the economy to achieve broader goals like higher growth, lower inflation, or poverty reduction.
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Ceteris Paribus Assumption: Economists simplify the complexity of the real world by using the ceteris paribus assumption, meaning 'all other things remain unchanged.' This simplification allows for the examination of relationships between specific economic variables.
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hom*o Economicus Assumption: Economists often assume individuals act as 'hom*o economicus,' rational actors who always act to maximize their economic self-interest. This assumption helps explain the behavior of both firms (as profit maximizers) and consumers (as utility maximizers).
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Positive Statements in Economics: Economics, as a social science, deals with factual statements that can be proven true or false by examining the evidence. These statements are referred to as positive statements.
In conclusion, the scientific method is a powerful tool applied in economics, but the unique challenges of studying human behavior and the complexity of economic systems necessitate adaptations and probabilistic approaches. Modeling, assumptions, and a deep understanding of human motives are integral to the scientific study of economics.
