6 - Models and Theories in Economics

Summary

Chapter 6 is concerned with theories and models in economics. Economists typically prefer to speak of “models” rather than “theories” and of “generalizations” or “assumptions” rather than “laws.” Economists still speak of theories, but only when referring to subdivisions of the discipline. Why? What are models and how are they related to theories? Why are economists so enamored of models? Do they supersede or incorporate laws? Without settled definitions of theories or models, it is unclear whether the focus on models is just a change in terminology, or whether there is something interestingly different in the practice of contemporary economics. This chapter surveys philosophical conceptions of theories and defends a view of theories as sets of lawlike statements that are systematically interconnected. It argues that models should be understood as conceptual explorations without empirical commitments. They are definitions of predicates or kinds of systems. Models can be used to theorize, explain, or predict, when one offers theoretical hypotheses asserting that parts of the real world belong to the extension of the predicate a model defines.