6. The role of theory in economics

Model is an abstraction from real-world phenomena that approximates приближает reality and makes it easier to deal with; a theory.

A model consists of assumptions предположение and of the conclusions reached from those assumptions. There are at least three ways of reaching conclusions from a number of assumptions:

a) using verbal arguments to trace исходя out the logical implications вовлекая of the assumptions;

b) illustrating the assumptions in a diagram, and drawing conclusions from the diagram;

c) writing the assumptions in a mathematical form, and deriving извлекая conclusions using mathematical methods.

We build models with two main purposes in mind:

a) to explain why something has occurred случается, and perhaps to provide a single explanation for a number of events;

b) to predict подсказывать what will happen in the future.

So a “good” model is one that provides a convincing убедительные explanation and/or one that provides predictions that turn out to be accurate.

Value judgments

We have seen that economists can differ on their choice of model because they make different judgments about the important aspects of individual behavior. Once a model is chosen, we can make three different kinds of statement:

a) positive statements of what the model predicts, or how it explains. These statements are based only on logical deductions from the assumptions предложения of the model.

b) prescriptive statements,изложение which say what can be done (according to the model), given a particular aim.цель

c) normative statements, which say what should be done (based on the prediction or explanation of the model).

Positive statements involve влечет за собой no value judgment рассудительность: if two people use the same model, they reach identical conclusions on the basis of logical argument.

A normative statement involves a value judgment, which is an opinion that one situation is better than another. This value judgment is additional to the judgment that leads to the choice of the model. People disagree, and there is no logical way of deciding that one opinion is better than another.

A prescriptive statement does not directly involve a value judgment, because it does not make a statement that one situation is better than another. Instead, a prescriptive statement states the best course of action if the government or an individual has a particular aim, based on a value judgment of what is important.

We can illustrate the distinction отличия between these three types of statement using the following examples:

a) if the government increases the tax on cigarettes, people smoke less. This is a positive statement that can be reached by a logical argument from assumptions предположение that are made about how people behave.

b) if the government wants to reduce уменьшать the amount smoked, it should increase the tax on cigarettes. This is a prescriptive statement. It does not assume предпологает that the government wants to reduce smoking, but tells what it can do if it wants to reduce smoking.

c) The government should increase the tax on cigarettes. This is a normative statement because it involves a value judgment that the situation after the tax increase is better than the situation before the tax increase.