Maneuvering between Theory and Fact: A Case Study of Economic Modeling

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The discrepancy between what is asserted in economic theory and what really occurs in the economic world embarrasses economic theorists and prompts debates on economic theorizing between economic theorists and methodologists. Traditionally, economic theorists deal with the issue of realism versus theory by focusing on the concern of unrealistic assumptions in economic theories. This paper, based on Nancy Cartwright’s causal explanatory model, uses a case study from international trade theory to argue that, contrary to traditional wisdom, economic theorists’ application of unrealistic assumptions is not a vice with respect to the empirical tradition; rather, it figures in economic theory-building in the same way that physicists’ deployment and manipulation of idealized conditions does in the theory-building of physics. According to this view, unrealistic assumptions are introduced into theoretical models to act as controlling devices and thereby to safeguard such shielded models from disturbing influences produced by other, less relevant or less important causal factors and to ensure that these models elicit the main targeted phenomenon. The conclusions derived from these shielded theoretical models—i.e., the main targets of economic theorists—are the so-called abstract causal laws (or abstract capacity claims). From this perspective, inaccuracy as a characteristic of economic theories is not surprising. In addition, economic theorists practice theory-concretization, another type of model-manipulation. When theories are faced with anomalous phenomena, the deployed assumptions are, one by one, de-idealized—i.e., revised or removed—in order to derive an explanation of the anomaly. In these two ways—i.e., theory-abstraction and theory-concretization, economic theorists make a strong case that these practices represent an attempt to provide more complete causal accounts of the economic phenomenon in question.


Taiwanese Journal for Studies of Science, Technology and Medicine, Number 9