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A plea for realistic assumptions in economic modelling

Ivarola, Leonardo (2018) A plea for realistic assumptions in economic modelling. THEORIA. An International Journal for Theory, History and Foundations of Science, 33 (3). pp. 417-433. ISSN 2171-679X

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Abstract

The use of unrealistic assumptions in Economics is usually defended not only for pragmatic reasons, but also because of the intrinsic difficulties in determining the degree of realism of assumptions. Additionally, the criterion used for evaluating economic models is associated with their ability to provide accurate predictions. This mode of thought involves –at least implicitly– a commitment to the existence of unvarying invariant factors or regularities. Contrary to this, the present paper presents a critique to the use of invariant knowledge in economics. One reason for this analysis lies in the fact that economic phenomena are not compatible with the logic of invariance, but with the logic of "possibility trees" or "open-ended results". The other reason is that the use of invariant knowledge may entail both external validity problems and negative exposures to a "black swan". Alternatively, an approach where models are understood as possible scenarios is proposed. It is argued that the realism of (substantive) assumptions is crucial here, since it helps to ascertain the degree of resemblance between the different models and the target system.


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Item Type: Published Article or Volume
Creators:
CreatorsEmailORCID
Ivarola, Leonardol.ivarola@conicet.gov.ar
Additional Information: ISSN: 0495-4548 (print)
Keywords: Milton Friedman; economic models; invariance; assumptions; prediction
Subjects: Specific Sciences > Economics
General Issues > Models and Idealization
General Issues > Realism/Anti-realism
Depositing User: Unnamed user with email theoria@ehu.es
Date Deposited: 13 Dec 2018 20:40
Last Modified: 13 Dec 2018 20:40
Item ID: 15441
Journal or Publication Title: THEORIA. An International Journal for Theory, History and Foundations of Science
Publisher: Euskal Herriko Unibertsitatea / Universidad del País Vasco
Official URL: http://www.ehu.eus/ojs/index.php/THEORIA/article/v...
DOI or Unique Handle: https://doi.org/10.1387/theoria.18133
Subjects: Specific Sciences > Economics
General Issues > Models and Idealization
General Issues > Realism/Anti-realism
Date: September 2018
Page Range: pp. 417-433
Volume: 33
Number: 3
ISSN: 2171-679X
URI: https://philsci-archive-dev.library.pitt.edu/id/eprint/15441

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