Economic Models

The essential features of economic modeling include adopting simplifying assumptions about the examined problem, applying mathematical optimization theory to derive testable hypotheses and conclusions, and empirically testing these hypotheses against data to evaluate the relevance of the model to the real world. This method of modeling has been the dominant paradigm in economics since the early years of the twentieth century when practitioners of the discipline began to aspire to practice economic analysis as a “positive science” of human behavior. They hoped to work in a manner analogous to the way researchers practiced the “hard sciences” of physics, chemistry, and biology as positive sciences of the physical world. Just as the hard sciences predicted the movement of the planets or chemical or biological reactions, so ...