This paper considers the relevance of the Duhem-Quine thesis in economics. In the introductory discussion which follows, the meaning of the thesis and a brief history of its development are detailed. The purpose of the paper is to discuss the effects of the thesis in four specific and diverse theories in economics, and to illustrate the dependence of testing the theories on a set of auxiliary hypotheses. A general taxonomy of auxiliary hypotheses is provided to demonstrate the confounding of auxiliary hypotheses with the testing of economic theory.

The Inexact and Separate Science of Economics (ISSE) (Hausman, 1992) represents the most ambitious attempt to provide a systematic account of economic methodology since the first edition of Blaug's The Methodology of Economics (1980). As such, it has been the subject of extensive critical commentary (for example, Blaug, 1992b; Backhouse, 1995; Miller, 1996; Hahn, 1996; Mäki, 1996). For all the attention it has received, however, some important aspects of the book's thesis have not been developed properly. Two important ones are (1) what might be called, following the terminology used in the experimental economics literature, the ‘framing effect’ of Hausman's definition of economics, and (2) the significance of Hausman's claim that economists are committed to developing economics as a ‘separate’ science. To understand these points it is important to make explicit the position from which Hausman approaches the philosophy of science.

The principle of belief persistence, or conservativity principle, states that ‘When changing beliefs in response to new evidence, you should continue to believe as many of the old beliefs as possible’ (Harman, 1986, p. 46). In particular, this means that if an individual gets new information, she has to accommodate it in her new belief set (the set of propositions she believes), and, if the new information is not inconsistent with the old belief set, then (1) the individual has to maintain all the beliefs she previously had and (2) the change should be minimal in the sense that every proposition in the new belief set must be deducible from the union of the old belief set and the new information (see, e.g., Gärdenfors, 1988; Stalnaker, 1984). We focus on this minimal notion of belief persistence and characterize it both semantically and syntactically.

Ronald Dworkin's (1981) theory of equality of resources draws heavily on conceptual tools developed in economic theory. His criterion for a just distribution of resources is closely connected with two economic ideas: first, the idea that a distribution of resources reflects a concern for equality if it is envy-free; second, the idea that such an envy-free distribution of resources is attainable as a competitive equilibrium from equal split. The objective of this paper is to show that the criterion of equality of resources has been misinterpreted by normative economics, largely due to Dworkin's own lack of precision, and that it needs to be reformulated in order to be intelligible. The dimensions along which the reformulation is needed concern (1) the nature of the preferences used in what Dworkin calls the ‘envy test’ and (2) the nature of the envy test itself.

The context-free weak ordering principle (that rational preferences are weakly ordered, and that subtracting members from the domain of alternatives does not alter the ordering of the original domain, see, for example, Savage, 1972, pp. 205–6; McClennen, 1990, pp. 29–30) is viewed by many as a cornerstone of rational choice theory. McClennen, for example, claims (1990, p. 1) that this principle is one of a pair on which '[t]he theory of rational choice and preference, as it has been developed in the past few decades by economists and decision theorists, rests', and Sen (1970, p. 17) characterizes a version of context freedom (the ‘independence of irrelevant alternatives’, or ‘property α’) as ‘a very basic requirement of rational choice’. But this principle is certainly not uncontroversial: there are examples of (putative) principle is certainly not apper irrational.

Are there worthwhile values and ideals which flourish in the procedures of the state but wither in the transactions of the market? Are there equitable and fulfilling social relationships which are nurtured in the economic sphere but crumble in the political world? There is clearly some truth in the claim that at least in certain circumstances market systems inculcate in people not only ‘honesty and diligence, but also sensitivity to the needs and preferences of others’ (Gray, 1992, p. 24). On the other hand, it is difficult to deny the appeal of a tradition of thought which attaches moral superiority to the non-market ideals and values epitomised in the gift relationship. Titmuss (1970), for example, objected to treating blood as a commodity in part because it undermined the sense of fraternity or community which a system of voluntary blood donors enhanced. A contemporary statement of this position holds that gift values differ from commodity values in being ‘tokens of love, admiration, respect, honor, and so forth, and consequently lose their value when they are provided for merely self-interested reasons’ (Anderson, 1990, p. 203).