Philosophical Foundations

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Philosophical Foundations

• Lecture 4

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Organization of this lecture

• Philosophical Foundations
• Positivism
• Normativism
• Pragmatism
• Blending the Philosophies
• Empiricism in Research
• The Scientific Approach

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• Different philosophies of research are introduced
  to illustrate how they contribute to economic
  research.
• Ones philosophical beliefs affect ones choice
  of legitimate questions as well as ones
  choice of research methods (George Ladd)
• Each philosophical position has advantages, yet
  each has problems. In practice, researchers tend
  to use a combination, stressing different
  positions for different problems.
• These philosophies stress confirmation rather
  than discovery.

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Positivism

• Contends that only factual knowledge from
  observation (the senses) is trustworthy.
  Stresses measurement.
• Logical positivism expands this to include
  reasoning and theory as valid means to achieve
  reliable knowledge.
• While never a dominant philosophy in economics,
  it became influential in the mid-20th century,
  with proponents such as Wassily Leontief, Milton
  Friedman, and Harry Johnson. John Maynard
  Keyness father (John Neville Keynes) was an
  early proponent in the 1890s

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• Logical positivists do not believe in the
  scientific validity of prescriptive or
  descriptive knowledge about values.
• Only things which can be directly observed or
  measured are considered by positivists as valid
  for scientific attention.
• Positivistic knowledge is also culturally
  dependent since culture can affect interpretation
  of observations

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• Logical positivism holds that theoretical
  concepts are only valid if theory can be
  quantified. (too extreme a position for most
  economists).
• Both facts and theories are seen as sources of
  hypotheses economists embrace this component of
  positivism.
• But a problem with positivism is that many things
  that are not visible or concrete are still
  real.
• eg. demand relationships cant be seen but are
  very real their characteristics can be
  estimated.

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• Logical positivism is not accepted by many
  economists, but has had a profound effect on
  economic thinking and research.
• It has served to place more emphasis on
  measurement and quantification in economics.
• eg. new methods in statistics and econometrics
• Also more attention has been focused on values as
  being positivistic knowledge, when they are
  quantifiable or demonstrable.
• eg. What things people value, or how much they
  are valued.

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• Positivism has also highlighted the importance of
  objectivity.
• In emphasizing the importance of providing
  evidence, personal judgments and perceptions are
  not accepted as scientific information.
• In summary, positivism has had important and
  lasting effects on science and economic research.
  But it is too limiting a philosophy to be the
  dominant philosophy of science.

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Normativism

• A collection of philosophies emphasizes that
  knowledge of the goodness or badness of
  conditions, situations, and actions is necessary
  to produce prescriptive knowledge (what ought
  to be done).
• Normativistic knowledge in economic research
  emphasizes peoples values efficiency, welfare,
  income, standard of living, quality of life.
• Intrinsic values (good and bad) are considered
  knowable.

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• However, normativism in economics is not
  concerned with moral questions of right and wrong
  (but rather good or bad, which is different).
• Economic choices (the right choice) may entail
  selecting between several bad or unfavorable
  alternatives.
• Personal or private values should not be
  considered, but rather public knowledge of
  values. Emphasis is on objectivity

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• Objective Normativism refers to the position that
  the desirability of a result or outcome can be
  known, based on experience or logic.
• Objective normativism accepts that value
  knowledge is sometimes essential for statements
  about what should be done to accomplish specific
  goals or objectives.
• eg. The people of the world are better off
  with free trade than with restricted trade.
• Any discipline that deals with public policy must
  use normative value judgements

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Pragmatism

• Mainly focused on prescriptive knowledge (what
  ought to be) and emphasize problem solving.
• Believes that positivistic value-free knowledge
  and normativistic value knowledge to be
  interdependent.
• Workability (appropriateness for the problem at
  hand) is the central pragmatic criterion for
  judgment.

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• Pragmatism became a prominent philosophical force
  in economics research in the 1920s.
• Institutional economics (ie of societys
  institutions) pragmatically focuses on problem
  solving.
• Test of Workability is the primary test for
  reliability of prescriptive knowledge. ie. Is
  the problem solved?
• Clarity if solution is not ambiguous or vague
• Coherence if prescription works
• Correspondence if consistent with what we
  already know.

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• Pragmatism plays the greatest role in
  problem-solving research, less in subject-matter
  research and the least in disciplinary research.
• U.S educational and political systems are
  dominated by the philosophy of pragmatism, which
  stress problem-solving and workability (achieving
  results).

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How the Philosophies Blend

• Most disciplines have adopted the philosophies of
  logical positivism, objective normativism and
  pragmatism in some combination.
• Economics is a problem-solving, decision-oriented
  discipline by nature. Many different kinds of
  problems are addressed, ranging from simple
  everyday activities to complex theoretical
  problems of cause-effect relationships.

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• The three philosophies positivism, normativism,
  and pragmatism may all be more or less
  important depending on the type of research.
• Disciplinary (and basic theoretical) research
  focuses on logical positivism and objective
  normativism.
• Subject-matter research involves all three
  philosophies. The focus is on understanding
  outcomes of proposed actions, which leads to
  guidelines and decisions.
• Problem-solving research that addresses
  particular management of policy questions for a
  decision-maker can be both positivistic (eg.
  estimating parameters) and normativistic ( eg.
  estimating consumer surpluses)

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• All types of research are needed all are
  relevant (in different cases)
• However, some contend that too much emphasis has
  been place on disciplinary journal publishing.
  This fosters a situation where economists only
  communicate with other economists. And only
  about theoretical issues.
• On the other hand, most noneconomist users of
  economic research want the results to be
  intuitively obvious without understanding of
  complexities. This is unrealistic!

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Empiricism in Research Methodology

• The influence of logical positivism fostered
  interest in measurement or quantification, as
  applied to economics.
• Empiricism goes beyond this in subjecting
  measurement results to testing. Collecting of
  social and economic data led to statistical
  methods of analysis, including estimation
  techniques.
• The integration of mathematics with economic
  theory led to the development of econometrics.

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• Econometrics originated in the early 1900s and
  was augmented tremendously by the advent of
  electronic computers.
• It is now considered essential analytical
  training for all economists.
• Since it emphasizes empirical data and
  measurements it is both positivistic and
  pragmatic.
• Some leading economists (eg. Leontief) argue for
  more empiricism in economics more measurement,
  reliance on data (objective observation) and
  quantitative analysis to improve scientific
  respectability of economics.

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The Scientific Approach

• The central scientific methodology (not a single
  scientific method) has the following general
  steps
• Identify the problem/issue/question
• Define research objectives
• Develop approaches for achieving objectives
  (including hypotheses of expected outcomes)
• Conduct the analysis (testing the hypothesis)
• Interpret the results and draw conclusions
• These steps are common to all disciplines

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• Problem identification is affected by individual
  as well as group perceptions ie. what we
  perceive as a problem.
• Objectives, the identified set of specific goals,
  are inherently normative, ie. related to our
  values and perceptions
• Both problem identification and objective
  specification may have a pragmatic orientation.

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• Laboratory and field sciences tend to see their
  research process as producing reliable data,
  devoting attention to proper experimental design
  to generate statistically valid numbers .
• Social sciences see their process more in terms
  of using data to understand relationships and to
  address problems requiring decisions.
• Physical and social science disciplines tend to
  differ in the last step of interpreting the data.
  Economists maintain that normative
  interpretation of data is often necessary with
  complex social science research.

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Deduction and Induction in the Scientific Approach

• Usually the approach in economics consists of the
  ongoing interfacing of deduction and induction.
• Deduction is involved in developing theory and
  induction is used in validating or evaluating the
  applicability of the theory through empirical
  testing.
• Here we are concerned with how deduction and
  induction are used, rather than their relative
  merits as forms of logic.

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• Deductive reasoning starts with premises
  assumptions .
• If the individual premises are true and complete
  and the reasoning is correct, the conclusion is
  reliable.

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• The most direct application of deductive
  reasoning in the scientific approach is in Step
  3, developing hypotheses.

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• Disciplinary research often involves developing
  or modifying theories, leading to hypothesized
  outcomes.
• Theoretical reasoning can include
• Newly developed theories
• New conceptual elements added to theories
• Modification of existing theories
• In applied research, the reasoning involves the
  application of existing theory and evaluation of
  expected outcomes.

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• Induction is an empirical process of arriving at
  new generalities from observations and does not
  depend on previous knowledge (ie theories).
• The testing of hypotheses is largely inductive.
• Statistical induction is the process of testing
  estimates of parameters or the amount of
  variation explained in variables describing
  relationships.

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• Induction cannot provide proof of a proposition
  because we cannot examine all possible evidence.
  We can only describe the probability of the
  outcome.
• We cannot say that an outcome or relationship
  will always hold the underlying cause of the
  outcome or relationship could change over time.
• But outcomes based on evidence can have a
  specified probability

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• Interpretation of results (step 5) is largely
  inductive. In examining implications, we often
  extrapolate from the specific analysis to more
  general applications.
• eg. A representative firm can be used to reason
  through the expected behavior of an industry.
  The outcome for the industry can be estimated to
  be the outcome for the firm times the number of
  firms.

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• Deduction provides the necessary implications of
  premises, which may be general (laws, axioms,
  principles) or specific (factual) induction
  examines the validity or applicability of the
  premises
• Deductive reasoning can organize knowledge and
  deduce new relationships but is not sufficient as
  a source of new knowledge.
• Inductive reasoning fails to use prior knowledge,
  and is therefore inefficient.
• Both deduction and induction are necessary.