ECO 201 Lecture Notes - Lecture 2: Positive Statement, Statistical Hypothesis Testing
Document Summary
Scieniic method- dispassionate approach to understanding how the world works: step 1- observe the world and ind quesions to answer, 2. Develop theory to explain how the world works. From theory, we draw hypotheses- testable predicions of our theory. In economics, theory is developed through economic models- simpliied representaions of the world. Models are built through assumpions which simplify the world ideally, our assumpions remove anything that is unimportant in answering our quesion: 3. Oten we can"t test economic hypothesis in a laboratory. Economists heavily rely on natural experiments when nature intervenes in a way that allows us to test a hypothesis. Downside of natural experiments is that we do not have the level of control hat we would have in a lab seing. Consequently, we rely heavily on staisical methods to test our hypothesis: 4. (a)- if the hypothesis test is consistent with out theory, repeat, (b)- if a test is inconsistent with theory, repeat.
