Economics Theories and Data

Positive statements Normative statements Most disagreement among the economists is about normative stuff But remember about preconceptions

Theory – what do you think a theory is? A techy way to think about: Real world phenomena and what we want to explain Phenomenon in a theory = a variable Well defined item Can take on many values Exogenous variable Endogenous variable

Model + Variables = Theory A model An abstract that relates variables Can be manipulated easily Do not have to break a real thing !!! Used as a synonym for “theory” all the time Model + Variables = Theory Good theory Clear Simple General Refutable

A theory is a guess, has to be tested to obtain credibility Rejection vs confirmation vs proof Experiments vs statistics/econometrics Correlation vs causation !!! Used as a synonym for “theory” all the time Model + Variables = Theory Good theory Clear Simple General Refutable