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Logical Gaps: Path A—Theory to the Real World

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Rethinking Economics

Part of the book series: SpringerBriefs in Economics ((BRIEFSECONOMICS))

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Abstract

Many claims are widely accepted because they have been demonstrated to be valid according to some theory. However, while theories are, hopefully, internally consistent, they can be considered no more than analogies for the real world. This chapter explores this dimension, including discussion of rhetoric used in support of preferred theories. Perfect competition and Tversky and Kahneman’s ‘systematic reversals of preference’ are used to illustrate these points, including the limitation of consistency as justification for acceptance of a theory. The importance of groups to create and establish dominant conventions is also covered.

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Notes

  1. 1.

    Note that the term ‘frame’ has been used in a different context to mean a ‘conceptual frame’ (Bateson 1972; Goffman 1974). Bateson (1972, p. 182) describes fighting that is not intended to injure, suggesting that this could be seen as ‘play’ or as ‘ritual’. The nature of the relationship between a doctor and a patient might be perceived differently when framed as one between a health care provider and a consumer of health care. Depending on their conceptual framing of the situation, the parties each have perceptions of their respective roles and hence expected behaviours. Particular problems can arise when perceptions do not match.

  2. 2.

    Note also that there are older, more specific critiques such as criticism of the ‘postulational method’, theory built on postulates (Koopmans 1957; Kurien 1970), In addition, a reading of the classics, not least Smith (2007), indicates a highly nuanced assessment, much of which has been lost in current textbook expositions.

  3. 3.

    At a most basic level, considering the distinction between ontology and epistemology, any description relies on the classifications afforded by the mode of expression, as with the use of language. There is not a one-to-one correspondence between words in different languages. Even if there were, the link from language to the phenomena that the words describe is not precise, if only because of the aggregation and discrete distinctions implicit in language. Consequently, descriptions cannot precisely reflect the real world.

  4. 4.

    This is a serious paradox. Is no education required to improve people’s economic decision making? If so, why is it accepted that education is required to increase understanding in other areas of activity? In any event, can economic decisions be considered in isolation?

  5. 5.

    ‘The view that now pervades much public policy economics implicitly presents the relevant choice as between an ideal norm and an existing “imperfect” institutional arrangement. This nirvana approach differs considerably from a comparative institution approach in which the relevant choice is between alternative real institutional arrangements’ (Demsetz 1969, p. 1).

  6. 6.

    Others have found groups to be important for perceptions and behaviour (Weng and Yang 2014). This point is discussed further in Sect. ‎2.2.4.

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  1. Massey University, Palmerston North, New Zealand

    Stuart Birks

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Birks, S. (2015). Logical Gaps: Path A—Theory to the Real World. In: Rethinking Economics. SpringerBriefs in Economics. Springer, Singapore. https://doi.org/10.1007/978-981-287-176-3_2

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