Evidence-based economics — the fundamentals

19 Jun, 2022 at 09:52 | Posted in Economics | Leave a comment

Many economists still think that “evidence” is only of one kind, i.e. statistical/econometric analysis. Whilst this is important, it is not enough on its own. One reason for its privileged position may be that it is typically contrasted with “anecdotal evidence”, which is unreliable. But the truth is richer than that.

News - Evidence-Based Economics - LMU MunichIt is true that basing one’s thinking about the economy on one or more stories carries the danger that one will just favour the narrative that suits one’s preconceptions. Any item of evidence needs to be representative of the underlying reality in some way – in fact this is true also of statistical analyses. And subjective bias (wishful thinking) needs to be avoided, whatever the type of evidence. In addition, any kind of evidence is fallible, so that caution is required. This applies as much to statistical analyses as to any other type – in medicine, it is commonplace to find that the results of epidemiological studies fail to be replicated – the rule of thumb is that a plurality of studies, as with cigarette smoking and lung cancer, is required before one accepts a finding as truly established.

The history of science shows clearly that secure knowledge derives not only from iteration between evidence and theory, but also that it typically depends on a variety of types of evidence – the more diverse the better. The implication for economics is that econometrics needs to be augmented with other approaches. A particularly valuable one is comparative economic history – highlighting the similarities and the differences between the experiences of different economies. Other important methods include behavioural and experimental economics, field trials, randomised controlled trials, institutional analysis, survey analysis, etc.

Ideally, the evidence base should encompass evidence both of the “difference-making” variety – e.g. that lung cancer rates are far higher among cigarette smokers than in non-smokers – and evidence that throws light on the mechanisms or capacities involved.

Michael Joffe

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