Friday, June 28, 2013

Raising the bar of falsifiability in Economics

Economists do not dismiss theories easily. Although Popper taught us that once a falsifiable theory is reject by the data we should move on to better theories, it takes a lot of rejections for economists to move on. This may have two reasons: first, we all know that there can be serious issues with the data as we almost never have clean experiments to draw from. We are thus more tolerant for theories. Second, we tend to think that if a theory is rejected, we need to also propose a new one that is consistent with the data. That is quite a challenge.

Ronen Gradwohl and Eran Shmaya build on this second argument to amend the falsifiability criterion of Popper by adding a new one: that each rejection by the data be accompanied by a short proof on the inconsistency. If I understand this right, it would not be sufficient to show that the theory predicts, say, a positive relation between two variables, and the data finds a negative one, one also needs a convincing sketch of a proof that would convince a court that the data is indeed identifying the right relation and that it is relevant for the the theory. And this needs to be short because courts (or the scientific community) are busy. It seems we are doing it all wrong in Economics, as our arguments are excessively long, and getting longer. This is at least in part due to the fact that we require not just a short proof, but an extensive, complete one, and then we are still not convinced. Are we overdoing it? Possibly, at least the length and complexity of papers in Economics are becoming too much.

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