DOCSLIB.ORG

Were the Ordinalists Wrong About Welfare Economics?

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Were the Ordinalists Wrong About Welfare Economics? journal of Economic Literature Vol. XXII (June 1984), pp. 507-530 Were the Ordinalists Wrong About Welfare Economics? By ROBERT COOTER University of California, Berkeley and PETER RAPPOPORT New York University Useful comments on earlier drafts were provided by Sean Flaherty, Marcia Marley, Tim Scanlon, Andrew Schotter, Mark Schankerman, Lloyd Ulman and two anonymous referees. We are grateful to the National Science Foundation and the C. V. Starr Center at New York University for financial support. Responsibility for accuracy rests with the authors. pE DEVELOPMENT of utility theory has economics.1 The intuitive idea of scientific experienced two definitive episodes: progress is that new theories are discov­ the "marginalist revolution" of the 1870s ered that explain more than old theories. and the "Hicksian" or "ordinalist revolu­ We shall contend that the ordinalist revo­ tion" of the 1930s. While the first event lution was not scientific progress in this established a central place for utility the­ sense. For example, the older school was ory in economics, the second restricted concerned with economic policies to the concept of utility acceptable to eco­ bring about income redistribution and al­ nomics. The term "ordinalist revolution" leviate poverty, and the ordinalists did not refers to the rejection of cardinal notions offer a more general theory for solving of utility and to the general acceptance these problems. Instead, the trick that car­ of the position that utility was not compa­ ried the day for the ordinalists was to ar­ rable across individuals. The purpose gue that the questions asked by the older of this paper is to analyze the events school, and the answers which they gave, comprising the ordinalist revolution with 1 For example, Kenneth Arrow, referring to the a view to determining whether they earlier school, wrote: achieved the advances in economic sci­ . the proponents of measurable utility have been ence usually claimed for them. unable to produce any proposition of economic behav­ ior which could be explained by their hypothesis and The developments of the 1930s are of­ not by those of the indifference-<!urve theorists [1963, ten regarded as unambiguous progress in p, 9]. 507 508 journal of EconomicLiterature, Vol. XXII (June 1984) were meaningless. 2 We shall argue that This essay aims to help the reader to re­ ordinalists offered different questions, not cover a clear view of the older framework better answers. Thus, the ordinalist revo­ and to understand why it was rejected by lution represented a change, not progress the ordinalists. in economics. In order to avoid misunderstanding, we In order to understand why the ques­ shall offer a brief explanation in contem­ tions asked by the older school seemed porary economic language of the material meaningless to the ordinalists, it is neces­ welfare conception of interpersonal util­ sary to understand the dramatic change ity. Economists of the older school are of­ in the conceptual framework of econom­ ten characterized as having relied exten­ ics. Important elements of a conceptual sively on the belief that utility is cardinally framework are a definition of the subject measurable (unique up to a positive affine matter to be studied, a method of investi­ transformation), a belief that cannot be gation and proof, and some substantive validated by examination of consumer be­ empirical claims. The older framework havior, and one that is unnecessary for de­ defined economics as the science of "ma­ riving results in the theory of consumer terial welfare"3 and employed an empiri­ demand. We do not consider in detail cist methodology. In addition, its practi­ whether economists at the turn of the cen­ tioners held that their conception of utility tury believed individual utility to be cardi­ was comparable across people. The newer nally measurable, since this issue is tan­ framework adopted a scarcity definition gentiaJ to the question of interpersonaJ of economics, and employed a positivist comparisons. Instead, we concentrate on methodology. The salient feature of utility the special assumptions concerning utility was held to be its ordinal nature. that justified the interpersonal compari­ The elements of the newer frame­ sons made by these economists. work-the scarcity definition, positivist The different roles of assumptions about methodology, and ordinal utility-are fa­ measurability and comparability of utility miliar to contemporary economists. In can be elucidated by borrowing from the contrast, the elements of the older frame­ modern approach to social welfare theory work-the material welfare definition, em­ (for example, Amartya Sen 1977). Let each piricist methodology, and interpersonal individual i = I, 2 be represented by a utility-are now viewed through the dis­ set, L;,,, of utility functions. Each utility torting lens of the ordinalist framework. function is defined over the set of social states, and, for the present purpose, is best 2 The following is a partial list of questions that regarded simply as a list of numbers, one material welfare economists claimed to answer and for each state. Measurability assumptions ordinalists claimed were unanswerable by econom­ restrict L;, to particular classes of functions ics: Is a dollar more valuable to the average poor person than to the average rich person? Should econ­ or, equivalently, particular lists of num­ omists give different weight to additional income bers. For example, if utility is cardinally for the rich and poor when doing cost-benefit analy­ (ordinally) measurable, then each L;, will sis? Does a hungry person need food more than a bored person needs theater tickets? If income is re­ contain functions or sets of numbers that distributed to the poor, with no change in total in­ are related to each other by positive linear come, does national welfare go up or down? Is there (monotone) transformations. an economic justification for progressive income tax schemes? In this framework, we may view the 3 In his Essays on the Nature and Significance of problem of making interpersonal compar­ &anomic Science Lionel Robbins stated that this isons of utility as that of selecting a utility was "(t)he definition of Economics which would probably command most adherents, at any rate in function from each L;,. This determines Anglo-Saxon countries" (1937 [1932), p. 4). the magnitude of the number that will Cooter and Rappaport: Were the Ordinalists Wrong? 509 represent each person's utility in compari­ them. Essentially, goods were seen as hav­ sons. For reasons explained below, we will ing utility if they contributed to a person's call such a choice a "comparability con­ physical well-being, which was conceived vention." In general, there will be com­ as nearly equivalent to productive capac­ parability conventions from which it will ity. Physical well-being is objective, like follow that person 1 derives more utility the condition of a person's health, not sub­ than 2 in a particular state, and conven­ jective, like a person's enjoyment of a tions that entail the reverse. 4 In particular, good meal. Furthermore, productive ca­ even if individual utility is cardinally mea­ pacity of people is closely related to eco­ surable, it can be seen that the L;, have nomic efficiency, which is also objective. not been restricted sufficiently to make When ordinalist writers criticized this the outcome of a comparison independent comparability convention, they attributed of the comparability convention adopted. to the material welfare school their own For example, one can find a pair of utility conception of utility rankings, derived functions for which the state that yields from individuals' preference orderings. If 1 lowest utility has a higher number at­ utility is related tdpreference in this way, tached to it than 2's highest utility state, then interpersonal comparisons inevitably and a pair for which the reverse occurs. seem arbitrary, as if the writer were im­ A fortiori, we are not prevented from em­ posing his or her preferences on society. ploying conventions that yield these re­ However, the material welfare school did sults when utility is ordinally measurable. not equate utility with preference. It is apparent from the above that the The body of this paper examines the "arbitrariness" involved in making inter­ conceptual frameworks of the two schools. personal comparisons arises from the diffi­ The substantial difference between them culty of discriminating among compara­ is offered as evidence against the view that bility conventions. Restricting the L;, by the ordinalist revolution may be explained appeal to the standard measurability con­ as part of the progress of economic sci­ ditions does not materially limit the num­ ence. The fl.rst section summarizes general ber of possible comparability conventions. developments in utility theory up to the As we shall see, the material welfare early twentieth century. The next section school did opt for a particular comparabil­ describes the conceptual framework of ity convention, and evaluated social wel­ the material welfare school. Following fare on the basis of it. This choice could this, a comparison is made with the ordi­ be defended in the context of the inter­ nalist school, which reveals that the two pretation of utility employed by the mate­ schools were using the common elements rial welfare school. Utility rankings were in their vocabularies to refer to different not seen as coextensive with preference things. The fl.nal sections of the paper sum­ orderings, nor were they derived from marize the argument, and suggest lines along which to explain the success of the • This is so, even though, to be accurate, a compar­ ordinalist view. ability convention defines an equivalence class in L, the Cartesian product of L 1 L 2, in the sense that The aim of this paper is to demonstrate elements of this class will return the same results that the arguments developed some fl.fty for interpersonal comparisons of utility.
Load more

Recommended publications
  • Download?Doi=10.1.1.467.8745&Rep=Rep1&Type=Pdf (Accessed on 7 April 2021)
    Journal of Risk and Financial Management Article The Standard Model of Rational Risky Decision-Making Kazem Falahati Glasgow School for Business and Society, Glasgow Caledonian University, 70 Cowcaddens Road, Glasgow G4 0BA, UK; [email protected]; Tel.: +44-141-331-3708 Abstract: Expected utility theory (EUT) is currently the standard framework which formally defines rational decision-making under risky conditions. EUT uses a theoretical device called von Neumann– Morgenstern utility function, where concepts of function and random variable are employed in their pre-set-theoretic senses. Any von Neumann–Morgenstern utility function thus derived is claimed to transform a non-degenerate random variable into its certainty equivalent. However, there can be no certainty equivalent for a non-degenerate random variable by the set-theoretic definition of a random variable, whilst the continuity axiom of EUT implies the existence of such a certainty equivalent. This paper also demonstrates that rational behaviour under utility theory is incompatible with scarcity of resources, making behaviour consistent with EUT irrational and justifying persistent external inconsistencies of EUT. A brief description of a new paradigm which can resolve the problems of the standard paradigm is presented. These include resolutions of such anomalies as instant endowment effect, asymmetric valuation of gains and losses, intransitivity of preferences, profit puzzle as well as the St. Petersburg paradox. Keywords: decision-making; rationality; risk; expected utility; behavioural puzzles MSC Codes: 62Cxx; 90B50; 91A26; 91B02; 91B06; 91B16; 91B30 Citation: Falahati, Kazem. 2021. The JEL Codes: C00; D01; D81 Standard Model of Rational Risky Decision-Making. Journal of Risk and Financial Management 14: 158.
    [Show full text]
  • The Economics, Neurobiology and Pharmacology of Intertemporal Choice in Humans
    The Economics, Neurobiology and Pharmacology of Intertemporal Choice in Humans A thesis submitted for the degree of Doctor of Philosophy Alexander J Pine University College London September 2009 2 Preface I, Alexander J Pine confirm that the work presented in this thesis is my own. Where information has been derived from other sources I confirm that this has been indicated in the thesis. AJ Pine 3 Abstract In intertemporal choice, decision-makers must choose between options whose outcomes occur at different times in the future and are associated with different magnitudes of gain or loss. Previous neuropsychological research on this problem is dominated by a behavioural- economic model which proposes that choice outcome is solely determined by a process of devaluing rewards with time, termed temporal discounting. This thesis investigates the veracity of this assumption by developing a new mathematical model of choice which takes into account another fundamental feature of human preference, namely the non-linearity of the relationship between the utility and magnitude of gains. Using behavioural data, methodologies are developed to demonstrate that this model is superior to previous models in accounting for human intertemporal choices. Specifically, using existing terminologies ‘impulsive’ and ‘self-controlled’ to describe preference in choices between smaller-sooner and larger-later monetary rewards, it is shown that the discounting of increasing magnitudes implied by the law of diminishing marginal utility exerts a significant effect in determining choice outcome. In addition to high rates of temporal discounting, it is shown that impulsivity can be engendered by higher rates of diminishing marginal utility and vice-versa.
    [Show full text]
  • AEM751. MICROECONOMICS.Pdf
    NATIONAL OPEN UNIVERSITY OF NIGERIA COURSE CODE AEM 751 COURSE TITLE: MICROECONOMICS Department of Agricultural Economics and Extension National Open University of Nigeria, Kaduna UNIT ONE: SCOPE ECONOMICS Table of contents 1.0 Introduction 2.0 Objectives 3.1 Definition of Economics 3.2 Resources 3.3 Scarcity 3.4 Choice and opportunity cost 3.5 Basic economic problems 4.0 conclusion 5.0 summary 6.0 tutor – marked assignment 7.0 references and further readings 1.0 INTRODUCTION Most of you must have acquired some basic knowledge of economics before this stage of study. In this introductory unit, we shall be investigating the scope of economics in terms of how economics play the important role of preferring solution to the problem of society. It has been realized that resources are limited and human wants. Economist therefore focus on the problem of making the best use of resources available to satisfy these wants. Since there are many alternative things we can do with our resources, choice has to be made as to which to have per time. This unit will take you through the concept of wants, scarcity and opportunity cost. The unit will also consider some basic problems that economist attempt to deduce solution. 2.0 OBJECTIVE It is expected that after you must have gone through this course, you should be able to: 1. Define economics and make basic distinction between macroeconomics and microeconomics. 2. Define resources 3. Identify the various types of productive resources 4. Describe the relationship between scarcity and choice. 5. Explain the concept of opportunity cost 6.
    [Show full text]
  • Updating Rules for Non-Bayesian Preferences
    Updating Rules for Non-Bayesian Preferences. Tan Wang∗ December, 1999 Abstract We axiomatize updating rules for preferences that are not necessarily in the expected utility class. Two sets of results are presented. The first is the axiomatization and representation of conditional preferences. The second consists of the axiomatization of three updating rules: the traditional Bayesian rule, the Dempster-Shafer rule, and the generalized Bayesian rule. The last rule can be regarded as the updating rule for the multi-prior expected utility (Gilboa and Schmeidler (1989)). The operational merit of it is that it is equivalent to updating each prior by the traditional Bayesian rule. ∗Tan Wang is with the Faculty of Commerce and Business Administration, University of British Columbia, Van- couver, British Columbia, Canada, V6T 1Z2. [email protected]. The author is grateful to the Social Sciences and Humanities Research Council of Canada for financial support. 1 Introduction The traditional approach to updating is the Bayesian rule. This approach is justified by the ax- iomatic treatment of Savage (1954), where it is shown that, in situations of uncertainty, if a decision maker’s preference satisfies a certain set of axioms, his preference can be represented by an expected utility with respect to a subjective probability measure and that probability measure represents the decision maker’s belief about the likelihood of events. Moreover, in light of new information, the decision maker updates his belief according the Bayesian rule. This Savage paradigm has been the foundation of much of the economic theories under uncertainty. At the same time, however, the Savage paradigm has been challenged by behavior exhibited in Ellsberg paradox (Ellsberg (1961)), which seems to question the very notion of representing a decision maker’s belief by a probability measure and hence by implication the validity of the Bayesian rule.
    [Show full text]
  • Religion, Economy, and State: Economic Thought of Al-Mawardi in Adab Al-Dunya Wa-Al-Din by Aan JAELANI
    Journal of Economics Library www.kspjournals.org Volume 3 September 2016 Issue 3 Religion, Economy, and State: Economic Thought of al-Mawardi in Adab al-Dunya wa-al-Din By Aan JAELANIa† Abstract. The relation between religion, economy and the country became a major topic in the development of public welfare systems. Humans are political creatures that have the potential to realise the level of moral conscience to meet the needs of a better life, but humans as spiritual beings must have a balance between religious morality and economic morality. With economic ethics are supported by religious morality, the welfare system can be realised systemically if the state, communities and individuals can realise the six- dimensional form: religious observance, good governance, justice, national security, the prosperity of society and the nation's vision. Keywords. Religion, Economy, State, Ethics, Welfare state. JEL. B30, I30, N30, P50, Z12. 1. Introduction or the analysis of the public welfare, al-Mawardi al-Baghdadi (d. 450/1058) start a discussion philosophically about political ethics and Muslim character F with an emphasis on the role of individuals and communities to create integrity and social balance. In fact, the goal was set to realise the happiness of living in the world and in the hereafter (al-Arzanjani, 1328: 221-223). By applying philosophical postulates for a solid religious grounds, al-Mawardi describes human beings as political creatures (Arkoun, 2000: 250). If a man is a political creature, because he is basically weak (QS. Al-Nisa ', 4: 28), then he can not live without the help of others, in contrast to animals capable of living independently (al-Mawardi, 1996: 92- 93; al-Arzanjani, 1328: 218-219).
    [Show full text]
  • Economics 142: Choice Under Uncertainty (Or Certainty) Winter 2008 Vincent Crawford (With Very Large Debts to Matthew Rabin and Especially Botond Koszegi)
    Economics 142: Choice under Uncertainty (or Certainty) Winter 2008 Vincent Crawford (with very large debts to Matthew Rabin and especially Botond Koszegi) Background: Classical theory of choice under certainty Rational choice (complete, transitive, and continuous preferences) over certain outcomes and representation of preferences via maximization of an ordinal utility function of outcomes. The individual makes choices “as if” to maximize the utility function; utility maximization is just a compact, tractable way for us to describe the individual’s choices in various settings. We can view the utility function as a compact way of storing intuition about behavior from simple experiments or though-experiments and transporting it to new situations. The preferences represented can be anything—self-interested or not, increasing in intuitive directions (more income or consumption) or not—although there are strong conventions in mainstream economics about what they are normally defined over—own income or consumption rather than both own and others’, levels of final outcomes rather than changes. Thus if you think the mainstream approach is narrow or wrong-headed, it may make as much or more sense to complain about those conventions than about the idea of rationality per se. Background: Classical “expected utility” theory of choice under uncertainty This is the standard way to describe people’s preferences over uncertain outcomes. The Marschak reading on the reading list, linked on the course page, is a readable introduction. The basic idea is that
    [Show full text]
  • Discussion Paper: 11.09 November 2011 Aristotle's
    MASSEY UNIVERSITY SCHOOL OF ECONOMICS AND FINANCE DISCUSSION PAPER: 11.09 NOVEMBER 2011 JAMES E. ALVEY ARISTOTLE’S ETHICS AND ECONOMICS PART II: POLITICS (HIGH AND LOW) This series contains work in progress at the School of Economics and Finance, Massey University. Comments and criticism are invited. Quotations may be made on explicit permission of the author(s). The Secretary School of Economics and Finance Massey University Private Bag 11222 Palmerston North 4442 NEW ZEALAND Phone: 06 356 9099 Extn 7744 Fax: 06 350 5660 Discussion Paper 11.09 ISSN 1179-0474 (Online) ∗ Aristotle’s Ethics and Economics Part II: Politics (High and Low) James E. Alvey School of Economics and Finance Massey University Palmerston North New Zealand ABSTRACT This paper on Aristotle (384-322 BC) is part of a long-term research programme on the ancient Greeks. It is a companion to other work, which deals with the ancient Greek context, and the thought/work of Socrates (469-399 BC), Plato (427-347 BC), and Xenophon (434- 355 BC). The framework for the investigations is shaped by the Capabilities approach developed by Amartya Sen. This is the second of three papers concerning Aristotle. The first paper considered Aristotle’s ethics. The projected paper will focus on his economics. The current paper focuses on Aristotle’s politics. Aristotle distinguishes between a narrow and a broad definition of politics (politikē). The peak of politics in the polis, the legislative art, fundamentally affects private behaviour (and choice and character) by individuals through enactment of law. Political science, in this sense, is the ‘architectonic’ or ‘master’ science i.e.
    [Show full text]
  • Principles of Agricultural Economics Credit Hours: 2+0 Prepared By: Dr
    Study Material Course No: Ag Econ. 111 Course Title: Principles of Agricultural Economics Credit Hours: 2+0 Prepared By: Dr. Harbans Lal Course Contents: Sr. Topic Aprox.No. No. of Lectures Unit-I 1 Economics: Meaning, Definition, Subject Matter 2 2 Divisions of Economics, Importance of Economics 2 3 Agricultural Economics Meaning, Definition 2 Unit-II 4 Basic concepts (Demand, meaning, definition, kind of demand, demand 3 schedule, demand curve, law of demand, Extension and contraction Vs increase and decrease in demand) 5 Consumption 2 6 Law of Diminishing Marginal Utility meaning, Definition, Assumption, 3 Limitation, Importance Unit-III 7 Indifference curve approach: properties, Application, derivation of demand 3 8 Consumer’s Surplus, Meaning, Definition, Importance 2 9 Definition, Importance, Elasticity of demand, Types, degrees and method of 4 measuring Elasticity, Importance of elasticity of demand Unit-IV 10 National Income: Concepts, Measurement. Public finance: Meaning, Principle, 3 Public revenue 11 Public Revenue: meaning, Service tax, meaning, classification of taxes; 3 Cannons of taxation Unit-V 12 Public Expenditure: Meaning Principles 2 13 Inflation, meaning definition, kind of inflation. 2 Unit-I Lecture No. 1 Economics- Meaning, Definitions and Subject Matter The Economic problem: Economic theory deals with the law and principles which govern the functioning of an economy and it various parts. An economy exists because of two basic facts. Firstly human wants for goods and services are unlimited and secondly productive resources with which to produce goods and services are scarce. In other words, we have the problem of allocating scarce resource so as to achieve the greatest possible satisfaction of wants.
    [Show full text]
  • Defining Economics in the Twenty First Century
    Modern Economy, 2012, 3, 597-607 http://dx.doi.org/10.4236/me.2012.35079 Published Online September 2012 (http://www.SciRP.org/journal/me) Defining Economics in the Twenty First Century Bhekuzulu Khumalo Private Researcher, Toronto, Canada Email: [email protected] Received June 4, 2012; revised July 2, 2012; accepted July 10, 2012 ABSTRACT Economics as a subject matter has been given a variety of definitions over the last 200 years, however all the definitions have a similar concept that they lean towards, a general principle one can say. The definitions are not wrong, this paper does not seek to prove that they are wrong, but only to show they where right for their time, a subject matter like eco- nomics, though studied over the centuries only formally became a discipline in its own right in the last two centuries, and as such is fairly young and as we know more there perhaps is a time to seek a definition for economics for the twenty first century. This paper seeks to give such a definition in light of the increased understanding of economics or at the least we have access to greater information concerning the discipline economics than say Adam Smith, Alfred Mar- shall or Hayek. Take the definition by Samuelson, “Economics is the study of how societies use scarce resources to produce valuable commodities and distribute them among different people”, though correct, is the definition sufficient for the twenty first century and beyond, that is all this paper seeks to answer, for it is the definition of a discipline that guides the readers thoughts.
    [Show full text]
  • Microeconomics
    AQA A Level Economics Course Companion Year 2 Topics Microeconomics Author: Geoff Riley www.tutor2u.net Copyright tutor2u: www.tutor2u.net/economics 1 Individual economic decision making ................................................................................................ 4 Imperfect Information ........................................................................................................................ 6 Behavioural Economics ...................................................................................................................... 8 Public and Private Sector Organisations ...................................................................................... 15 Profit and Not-for-Profit Organisations ........................................................................................ 15 Production and productivity ............................................................................................................ 18 Specialisation, division of labour and exchange ............................................................................... 18 The Law of Diminishing Returns ....................................................................................................... 21 Long Run Returns to Scale ............................................................................................................ 22 Costs of Production .......................................................................................................................... 24 Costs of production in the short
    [Show full text]
  • Welfare Goal in Antitrust Journals.Sagepub.Com/Home/Abx
    The Antitrust Bulletin 1-39 ª The Author(s) 2018 The Unsound Theory Behind Article reuse guidelines: sagepub.com/journals-permissions the Consumer (and Total) DOI: 10.1177/0003603X18807802 Welfare Goal in Antitrust journals.sagepub.com/home/abx Mark Glick* Abstract This is the first installment of a two-part commentary on the New Brandeis School (the “New Brandeisians”) in Antitrust. In this first part, I examine why the New Brandeisians are correct to reject the consumer welfare standard. Instead of arguing, as the New Brandeisians do, that the consumer welfare standard leads to unacceptable outcomes, I argue that the consumer or total welfare standard was theoretically flawed and unrigorous from the start. My basic argument is that antitrust law addresses the impact of business strategies in markets where there are winners and losers. For example, in the classical exclusionary monopolist case, the monopolist’s conduct is enjoined to increase competition in the affected market or markets. As a result of the intervention, consumers benefit, but the monopolist is worse off. One hundred years of analysis by the welfare economists themselves shows that in such situations “welfare” or “consumer welfare” cannot be used as a reliable guide to assess the results of antitrust policy. Pareto Optimality does not apply in these situations because there are losers. Absent an ability to divine “cardinal utility” from obser- vations of market behavior, other approaches such as consumer surplus, and compensating and equivalent variation cannot be coherently extended from the individual level to markets. The Kaldor-Hicks compensation principle that is in standard use in law and economics was created to address problems of interpersonal comparisons of utility and the existence of winners and losers.
    [Show full text]
  • Economic Theory, Ideal Types, and Rationality
    Lansana Keita Economic Theory, Ideal Types, and Rationality Abstract: Contemporary economic theory is generally regarded as a scien­ tific or at least potentially so. The replacing of the cardinal theory of utility measurement by the ordinal theory was supposed to prepare the groundwork for economics as a genuine science. But in adopting the ordinal approach, theorists saw fit to anchor ordinal theory to axioms of choice founded on principles of rational behavior. Behavior according to these axioms was embodied in the ideal type model of rational economic man. This model served the basis for scientific explanation of the choices made by actual economic agents. I argue though that the postulate of rationality is a normative principle and that this compromises the scientific pre­ tensions of economic theory. Yet the theorist must rely on this principle to formulate predictive and explanatory theories. This raises questions as to whether it is possible that economic theory satisfy the same kind of scientific criteria set down for research in the natural sciences. I. It is generally assumed that of all the social sciences, econom­ ics is the most promising candidate for acceptance as a science. Theories in economics conform to the formal requirements de­ manded of theories in natural science in the sense that they possess basic postulates, axioms and laws whose function is to describe at a fundamental level some segment of the empir­ ical world particular to the discipline itself. Predictive and explanatory theories are then constructed from these posited axioms and postulates. For example, microeconomic theory which is founded on a set of axioms of choice purports to predict and explain the behavior of the consumer and that of the entre­ preneur.
    [Show full text]