Philosophy of Economics.

• Author: Neuberg, Leland G.

This book, which reprints a double issue of the philosophy journal Erkenntnis, contains 13 papers from a 1987 conference. The essays raise a variety of conceptual issues. How sound are economic arguments? What is the nature of economic explanation and prediction? How empirical is general equlibrium theory? Are contending macroeconomic theories empirically distinguishable? How are economic theory and data related? What roles do abstraction, specialization, deduction, and approximation play in economic modeling? To what extent is economics science?

Hausman analyzes a class of economic arguments including famous claims by Muth that firm expectations and economic theory predictions coincide, and by Becker and Friedman that firms don't racially discriminate. He concludes that such arguments are logically valid, but that economists rarely check their often implausible premises. Nelson formulates necessary conditions for an average to explain a single event well, and argues that the conditions don't hold in economics. So, for example, average consumer behavior doesn't explain the behavior of an individual consumer well. Nelson also claims that though we have empirically useful econometric models of market demand, we don't yet know if individual consumer behavior explains those models.

Rosenberg argues that economic theory makes only qualitative predictions and asks if those are enough for science. He notes that classical macroeconomics implies that labor market equilibrium is possible while Keynesian macroeconomics implies that labor market disequilibrium is possible. Balzer and Haendler relate ordinary least squares parameter estimation in an econometric market demand model to a philosophical theory of measurement. They argue that a natural scientist repeatedly remeasures the same situation, justifying application of probabilities and statistics. In contrast, a social scientist remeasures a quickly changing situation - e.g., econometric time series are not stationary.

Common knowledge that p is true means that everyone knows that p is true, everyone knows that everyone knows, ad infinitum. Bicchieri demonstrates that the existence of a unique equilibrium solution in some simple games implicitly assumes the absence of common knowledge of things like players' strategies. She argues that in real situations such common knowledge; rather than player bounded rationality, altruism, or imperfect information; may explain why players don't choose the...