In this paper, I review the literature on rational choice theory to scrutinize a number of criticisms that philosophers have voiced against its usefulness in economics. The paper has three goals: first, I argue that the debates about RCT have been characterized by disunity and confusion about the object under scrutiny, which calls into question the effectiveness of those criticisms. Second, I argue that RCT is not a single and unified choice theory—let alone an empirical theory of human behavior—as some (...) critics seem to suppose. Rather, there are several variants of RCT used in economics. Third, I propose that we think of RCT as a set of distinct research strategies to appreciate its diversity. This account implies that the effectiveness of any criticism depends on the variant of RCT we are considering. (shrink)

In a number of very influential publications, Epstein and Hoover (among other authors) have recently argued that a thoroughly micro-foundationalist approach towards economics is unconvincing for metaphysical reasons. However, as we show in this article, this metaphysical/social ontological approach to the debate fails to resolve the status of micro-foundations in the practice of economic modelling. To overcome this, we argue that endogenizing a model—that is, providing micro-foundations for it—correlates with making that model more complex. Specifically, we show that models with (...) more micro-foundations tend to have more parameters or variables. This matters, as there are well-established methodological reasons for preferring models with fewer parameters or variables—ceteris paribus. We therefore conclude that, from a practice-based point of view, micro-foundations are only defensible to the extent that they significantly improve the ability of the relevant model to fit the data of interest. In this way, we arrive at a practice-based, methodological reconceptualization of the debate surrounding the need for micro-foundations in economics. (shrink)

ABSTRACTWe investigate the applicability of Rodrik’s accounts of model selection and horizontal progress to macroeconomic DSGE modelling in both academic and policy-oriented modelling contexts. We argue that the key step of identifying critical assumptions is complicated by the interconnectedness of the common structural core of DSGE models and by the ad hoc modifications introduced to model various rigidities and other market imperfections. We then outline alternative ways in which macroeconomic modelling could become more horizontally progressive.

Philosophers sometimes claim that economics, and the idealizing strategies it employs, is ultimately unable to provide genuine laws of nature. Therefore, unlike physics, it does not qualify as an actual science. Careful consideration of thermodynamics, a well-developed physical theory, reveals substantial parallels with economic methodology. The corrective account of scientific understanding I offer appreciates these parallels: understanding in terms of efficient performance.

In the eyes of its practitioners, economics is both a deductive science and an empirical science. The starting point of its deductions might be thought of as first principles. But what is the status of such principles? The tension between foundationalism, the idea that there are necessary and secure first principles for economic inquiry, and fallibilism, the idea that no belief can be certified as true beyond the possibility of doubt, is explored. Empirical disciplines require some sort of falsifiability. Yet, (...) empirical inquiries also require a starting place—if not a necessarily true one, at least an indubitable one, that is, one that is not actually doubted. Indubitability appears to have necessary consequences, undercutting fallibilism, while fallibilism threatens confidence in the de facto first principles that begin inquiry. This tension is examined in three well-known attempts to define economics and its method: John Stuart Mill’s economics as the science of wealth, Lionel Robbins’s economics as constrained optimization; and George Stigler and Becker’s attempt to reformulate neoclassical economics to square empiricism with Robbins’ deductivism. (shrink)