The question of assumptions in economics.

Abstract

The first chapter provides an overview of some of the main developments in the discussion of unrealistic assumptions in economics since Friedman's (1953) contribution. The subsequent chapters are devoted to clarifying the issue of unrealistic assumptions in economics. It is asserted that posing the issue in terms of the "realism of assumptions" is hampered by severe ambiguities. Rather, we should think of assumptions in terms of whether they are false or not, and ask how false assumptions pose problems to making true claims. After this, a discussion of the essential and often unacknowledged role that deductive arguments play in orthodox economics and in economics in general is given. It is argued that it is difficult to test theories by their empirical implications alone as is often asserted, by orthodox economists, in defence of the use simplifying assumptions. The importance of deductive arguments points to the necessity of evaluating whether any false/simplifying assumptions used in deductive arguments falsify the conclusion. A false assumption is not necessarily problematic. but this must be evaluated to determine whether this is so. A chapter is spent discussing what is involved in making this evaluation. The thesis ends with a chapter discussing two other important reasons for the refusal of orthodox economists to evaluate consistently the impact of simplifying assumptions on conclusions. These are the ideas that optimizing behaviour is somehow equivalent to self-interested behaviour and the apparently greater predictive power of orthodox economics afforded by the use of certain assumptions.