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Economic methodology is the study of methods, especially the scientific method, in relation to economics, including principles underlying economic reasoning.In contemporary English, 'methodology' may reference theoretical or systematic aspects of a method (or several methods). Philosophy and economics also takes up methodology at the intersection of the two subjects.
General methodological issues include similarities and contrasts to the natural sciences and to other social sciences and, in particular, to:
Economic methodology has gone from periodic reflections of economists on method to a distinct research field in economics since the 1970s. In one direction, it has expanded to the boundaries of philosophy, including the relation of economics to the philosophy of science and the theory of knowledgeIn another direction of philosophy and economics, additional subjects are treated including decision theory and ethics.
Econometrics is the application of statistical methods to economic data in order to give empirical content to economic relationships. More precisely, it is "the quantitative analysis of actual economic phenomena based on the concurrent development of theory and observation, related by appropriate methods of inference". An introductory economics textbook describes econometrics as allowing economists "to sift through mountains of data to extract simple relationships". The first known use of the term "econometrics" was by Polish economist Paweł Ciompa in 1910. Jan Tinbergen is considered by many to be one of the founding fathers of econometrics. Ragnar Frisch is credited with coining the term in the sense in which it is used today.
Political economy is the study of production and trade and their relations with law, custom and government; and with the distribution of national income and wealth. As a discipline, political economy originated in moral philosophy, in the 18th century, to explore the administration of states' wealth, with "political" signifying the Greek word polity and "economy" signifying the Greek word "okonomie". The earliest works of political economy are usually attributed to the British scholars Adam Smith, Thomas Malthus, and David Ricardo, although they were preceded by the work of the French physiocrats, such as François Quesnay (1694–1774) and Anne-Robert-Jacques Turgot (1727–1781).
Monetary economics is the branch of economics that studies the different competing theories of money: it provides a framework for analyzing money and considers its functions, and it considers how money, for example fiat currency, can gain acceptance purely because of its convenience as a public good. The discipline has historically prefigured, and remains integrally linked to, macroeconomics. This branch also examines the effects of monetary systems, including regulation of money and associated financial institutions and international aspects.
Managerial economics deals with the application of the economic concepts, theories, tools, and methodologies to solve practical problems in a business. In other words, managerial economics is the combination of economics theory and managerial theory. It helps the manager in decision-making and acts as a link between practice and theory. It is sometimes referred to as business economics and is a branch of economics that applies microeconomic analysis to decision methods of businesses or other management units.
Positive economics is the branch of economics that concerns the description and explanation of economic phenomena. It focuses on facts and cause-and-effect behavioral relationships and includes the development and testing of economic theories. An earlier term was value-free economics. Positive economics as science, concerns analysis of economic behavior. Positive economics concerns what is. To illustrate, an example of a positive economic statement is as follows: "The unemployment rate in France is higher than that in the United States." Another is: “An increase in government spending would lower the unemployment rate.” Either of these is potentially falsifiable. In contrast, a normative statement is, for example, “Government spending should be increased.”
Experimental economics is the application of experimental methods to study economic questions. Data collected in experiments are used to estimate effect size, test the validity of economic theories, and illuminate market mechanisms. Economic experiments usually use cash to motivate subjects, in order to mimic real-world incentives. Experiments are used to help understand how and why markets and other exchange systems function as they do. Experimental economics have also expanded to understand institutions and the law.
Information economics or the economics of information is a branch of microeconomic theory that studies how information and information systems affect an economy and economic decisions. Information has special characteristics: It is easy to create but hard to trust. It is easy to spread but hard to control. It influences many decisions. These special characteristics complicate many standard economic theories.
Computational economics is a research discipline at the interface of computer science, economics, and management science. This subject encompasses computational modeling of economic systems, whether agent-based, general-equilibrium, macroeconomic, or rational-expectations, computational econometrics and statistics, computational finance, computational tools for the design of automated internet markets, programming tool specifically designed for computational economics and the teaching of computational economics. Some of these areas are unique, while others extend traditional areas of economics by solving problems that are tedious to study without computers and associated numerical methods.
Philosophy and economics, also philosophy of economics, studies topics such as rational choice, the appraisal of economic outcomes, institutions and processes, and the ontology of economic phenomena and the possibilities of acquiring knowledge of them.
Social choice theory or social choice is a theoretical framework for analysis of combining individual opinions, preferences, interests, or welfares to reach a collective decision or social welfare in some sense. A non-theoretical example of a collective decision is enacting a law or set of laws under a constitution. Social choice theory dates from Condorcet's formulation of the voting paradox. Kenneth Arrow's Social Choice and Individual Values (1951) and Arrow's impossibility theorem in it are generally acknowledged as the basis of the modern social choice theory. In addition to Arrow's theorem and the voting paradox, the Gibbard–Satterthwaite theorem, the Condorcet jury theorem, the median voter theorem, and May's theorem are among the more well known results from social choice theory.
Milton Friedman's book Essays in Positive Economics (1953) is a collection of earlier articles by the author with as its lead an original essay "The Methodology of Positive Economics." This essay posits Friedman's famous, but controversial, principle that assumptions need not be "realistic" to serve as scientific hypotheses; they merely need to make significant predictions.
Economics imperialism in contemporary economics is the economic analysis of seemingly non-economic aspects of life, such as crime, law, the family, prejudice, tastes, irrational behavior, politics, sociology, culture, religion, war, science, and research. Related usage of the term goes back as far as the 1930s.
Justice in economics is a subcategory of welfare economics with models frequently representing the ethical-social requirements of a given theory, whether "in the large", as of a just social order, or "in the small", as in the equity of "how institutions distribute specific benefits and burdens". That theory may or may not elicit acceptance. In the Journal of Economic Literature classification codes 'justice' is scrolled to at JEL: D63, wedged on the same line between 'Equity' and 'Inequality' along with 'Other Normative Criteria and Measurement'. Categories above and below the line are Externalities and Altruism.
Agent-based computational economics (ACE) is the area of computational economics that studies economic processes, including whole economies, as dynamic systems of interacting agents. As such, it falls in the paradigm of complex adaptive systems. In corresponding agent-based models, the "agents" are "computational objects modeled as interacting according to rules" over space and time, not real people. The rules are formulated to model behavior and social interactions based on incentives and information. Such rules could also be the result of optimization, realized through use of AI methods.
The International Encyclopedia of the Social & Behavioral Sciences, originally edited by Neil J. Smelser and Paul B. Baltes, is a 26-volume work published by Elsevier. It has some 4,000 signed articles, and includes 150 biographical entries, 122,400 entries, and an extensive hierarchical subject index. It is also available in online editions. Contemporary Psychology described the work as "the largest corpus of knowledge about the social and behavioral sciences in existence." It was first published in 2001, with a 2nd edition published in 2015. The second edition is edited by James D. Wright.
Mathematical economics is the application of mathematical methods to represent theories and analyze problems in economics. By convention, these applied methods are beyond simple geometry, such as differential and integral calculus, difference and differential equations, matrix algebra, mathematical programming, and other computational methods. Proponents of this approach claim that it allows the formulation of theoretical relationships with rigor, generality, and simplicity.
Robert Wayne Clower was an American economist. He is credited with having largely created the field of stock-flow analysis in economics and with seminal works on the microfoundations of monetary theory and macroeconomics.
The methodology of econometrics is the study of the range of differing approaches to undertaking econometric analysis.
Daniel M. Hausman is an American philosopher. His research has focussed primarily on methodological, metaphysical, and ethical issues at the boundaries between economics and philosophy. He is currently Herbert A. Simon Professor in the Department of Philosophy at the University of Wisconsin–Madison.
Edward Emory Leamer is a professor of economics and statistics at UCLA. He is Chauncey J. Medberry Professor of Management and director of the UCLA Anderson Forecast.