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Chapter 2

01:220:102 Chapter Notes - Chapter 2: Empiricism


Department
Economic
Course Code
01:220:102
Professor
D.Okada
Chapter
2

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Chapter 2: Economic Methods and Economic Questions
Key Ideas
- A model is a simplified description of reality
- Economists use data to evaluate the accuracy of models and understand how the world works
- Correlation does not imply causality
- Experiments help economists measure cause and effect
- Economic research focuses on questions that are important to society and can be answered with models and data
2.1 The Scientific Method
- Empiricism is at the heart of all scientific analysis
- Scientific method: name for the ongoing process that economists, other social scientists, and natural scientists use to 1)
develop models of the world and 2) test those models with data - evaluating the match between the models and the data
- Economists do not expect this process to reveal the true model of the world since it is so complex, but expect to find
models useful to the world
- Testing with data separates the good models from the bad (either fix or replace completely)
Models and Data
All scientific models make predictions that can be checked with data
- Model: simplified description, or representation, of the world
- Earth is flat on maps and GPS but when flying, the spherical shape matters
- Use the model that is best suited to analyze the problem at hand
- More important for the model to be useful than precisely accurate
- Data: facts, measurements, or statistics that describe the world
- Economists describe themselves as empiricists because they use data to create empirical evidence (set of facts established
by observation and measurement)
- Using data to answer questions about the world and using data to test models
- Could test NYC subway map by actually riding the subway and checking map’s accuracy
- Hypotheses: predictions (usually generated by model) that can be tested with data
- Usually try to come up with a better model that yields new hypotheses
An Economic Model
- All economic models begin with assumptions
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