On “empirical” methods in economics

Robert Murphy wrote a very good post showcasing the extremely poor record of the so-called empirical methods in macroeconomics. I commented there as follows:

The problem is that the statistical methods economists use (Daniel is right that it weren’t physicists who invented them) aren’t very scientific. First of all, statistical inference is in general, strictly speaking, not scientific. No one knows what probability is at the bottom level and it is not an intrinsic, fundamental thing like energy (except, perhaps, for the collapse of the quantum wave function).

At the practical level, probability is now defined as a share of a certain outcome of the experiment in all the observed multiple outcomes of such experiment. Even if we ignore the previous point and treat this approach as scientific there is a big problem for applying the method to economic phenomena. The problem is that choices aren’t repeated, separate experiments, they are unique events.

I know that statisticians have found a way to go around this problem by showing that certain metrics of distributions of non-experimental data-generating processes are very similar to those of the distributions of outcomes of what they believe are repeated random experiments (like throwing dice). But this go-around is a non-sequitur. It requires a question begging assumption that probability is applicable where certain metrics of the distribution are similar to those of the distributions that are believed to be random.

On the other hand, I disagree with Bob to the extent that he maintains that praxeology isn’t empirical. It isn’t empirical in the narrow, positivist sense of the word. But it is empirical in the Aristotelian realist sense of the word. All our knowledge is ultimately based on experience, including the knowledge of what action, means, money, etc. are.

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