Analogue economies and reality23 March, 2017 at 00:54 | Posted in Economics | 2 Comments
Modelling by the construction of analogue economies is a widespread technique in economic theory nowadays … As Lucas urges, the important point about analogue economies is that everything is known about them … and within them the propositions we are interested in ‘can be formulated rigorously and shown to be valid’ … For these constructed economies, our views about what will happen are ‘statements of verifiable fact.’
The method of verification is deduction … We are however, faced with a trade-off: we can have totally verifiable results but only about economies that are not real …
How then do these analogue economies relate to the real economies that we are supposed to be theorizing about? … My overall suspicion is that the way deductivity is achieved in economic models may undermine the possibility to teach genuine truths about empirical reality.