What is truth in economics?

27 Oct, 2016 at 15:11 | Posted in Economics | 3 Comments

28mptoothfairy_jpg_1771152eIn my view, scientific theories are not to be considered ‘true’ or ‘false.’ In constructing such a theory, we are not trying to get at the truth, or even to approximate to it: rather, we are trying to organize our thoughts and observations in a useful manner.

Robert Aumann

What a handy view of science.

How reassuring for all of you who have always thought that believing in the tooth fairy make you understand what happens to kids’ teeth. Now a ‘Nobel prize’ winning economist tells you that if there are such things as tooth fairies or not doesn’t really matter. Scientific theories are not about what is true or false, but whether ‘they enable us to organize and understand our observations’!

What Aumann and other defenders of scientific storytelling ‘forgets’ is that potential explanatory power achieved in thought experimental models is not enough for attaining real explanations. Model explanations are at best conjectures, and whether they do or do not explain things in the real world is something we have to test. To just believe that you understand or explain things better with thought experiments is not enough. Without a warranted export certificate to the real world, model explanations are pretty worthless. Proving things in models is not enough.

Truth ought to be as important a concept in economics as it is in real science.


  1. There are two kinds of science. One kind accepts the established facts as being the truth about them, whilst the other kind of science recognizes that the current explanation (or hypothesis) is the best we have at present, but it is not final in so far as being the whole truth. Some people believe that the first kind is so perfect as to accept it as a faith of an almost a religious kind. In economics we are far from this kind of science, which instead falls into this second category, so we are still trying to determine what part of economics is known for sure. Until we get to the basic facts about the true nature of economics, we will be unqualified to write more details about it.

    I used to claim: “The trouble with religious faith is that it is 100% certain and the trouble with scientific knowledge is that it isn’t!”

  2. What is possible and what is important and what lends science
    its special character is not the elimination of extra-scientific
    interests but rather the differentiation between the interests
    which do not belong to the search for truth and the purely
    scientific interest in truth. But although truth is our regulative
    principle, our decisive scientific value, it is not our only one.
    Relevance, interest, and significance (the significance of statements
    relative to a purely scientific problem situation) are likewise
    scientific values of the first order; and this is also true of values
    like those of fruitfulness, explanatory power, simplicity, and

    In other words, there exist purely scientific values and disvalues
    and extra-scientific values and disvalues.

    from Popper’s 14 Thesis from the Positivist Dispute

  3. “Truth ought to be as important a concept in economics as it is in real science.”
    But what if the truth were that markets are not self-regulating, nor in equilibrium, and that monetary policy is insufficient to maintain economic stability?
    That would mean that the regulatory and fiscal decisionmaking necessary to maintain economic stability and the orderly functioning of markets would be subject to the outcome of political processes, which in economic theory is untrue by axiom.
    How to resolve this apparent paradox?

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