Lecture 2: Economics as a Social Science

Outline:

1. What is a "social science"?

a. Social sciences

b. Scientific method

c. Economics as a social science

2. Science and the positive/normative distinction

a. Positive questions

b. Normative questions

c. Science

d. Critique of the positive/normative distinction

3. The scientific approach

a. The importance of theories

b. The structure of theories

4. An example: The theory of demand.

1. The social sciences:

* The social sciences study human behavior with the objective of understanding and predicting it.

* The scientific method in the social sciences involves formulating theories to explain human behavior, and testing those theories against observed human behavior.

* Examples of social sciences: Sociology, Anthropology, Political Science.

* Economics is a social science that studies human behavior in the context of how resources are used to satisfy human wants.

* One way in which the social sciences differ from the physical sciences is in lacking opportunities to conduct controlled experiments to test theories.

2. Science and the positive/normative distinction:

Positive questions: These are questions about "what is".

Most positive questions can be tested by appealing to facts.

Disputes over positive questions can generally be resolved by appealing to facts.

Normative questions: These are questions about "what ought to be" or "what should be".

These questions are based on value judgements and thus cannot be tested by appealing to facts.

Disputes over normative questions cannot be resolved by appealing to the facts, they can only be resolved through persuasion.

Question: What would be an example of a positive question? A normative question?

Science and positive questions:

Because the scientific method depends on the ability to test theories, science is generally believed to confine itself to positive questions.

Economics and positive questions:

As social scientists, many economists argue that economics should confine itself to positive questions. Normative questions should, they argue, be left to politicians.

Others in the economics profession reject this argument. They generally cited one or both elements of the critique of the positive/normative distinction.

Critique of the positive/normative distinction:

There are two elements involved in the social science critique of the positive/normative distinction:

i. The distinction itself is not clear - value judgements enter into many different levels of scientific inquiry.

For example:

a. Value judgements can affect the choice of problems to study.

b. Value judgements can affect the methods chosen to study the problem.

c. Value judgements can affect the interpretation of evidence obtained from the studying the problem.

d. Values can affect the reporting of the evidence.

e. Values can affect how research is evaluated by the scientific community.

An example.

ii. Social scientists are human beings who cannot exempt themselves from making moral and ethical judgements concerning their research. The scientists themselves should tackle these issues rather than leaving them for politicians to deal with.

An example.

3. The Scientific Approach

* The scientific approach involves relating questions to evidence.

* Questions are generally posed in the form of "theories".

* Social scientists formulate theories to explain human behavior and then test them by comparing the predictions of the theories with observed human behavior.

* Theories involve simplification and abstraction - for a given problem they focus on the relationships that are essential for understanding a problem and they leave out the inessential details - like a road map.

Importance of theories:

* Theories help us make sense of the world around us.

* Without theories we would have observations that would not have any meaning for us.

* Theories allow us to simplify the complexity of what we observe

* All of us theorize every day - some of our theories are as simple and crude as "stereotypes" whereas others are more complex and sophisticated.

Structure of Theories

Theories consist of three essential components:

1. Definition of variables - variables are the basic elements of a theory and they are either the things we seek to explain (endogenous variables) or the things that are part of the explanation (exogenous variables).

2. Set of assumptions - assumptions are needed to describe the behavior of the variables, usually these define the relationships between the variables.

3. Predictions or hypotheses - predictions or hypotheses are deduced from the assumptions of the theory, these are "if x, then y" statements which are then tested against empirical observation.

4. An example: The theory of demand