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 too would economists construct positive models that would predict human behavior.

Economic modeling differs from the traditional modeling methods of most other social sciences in that it is “deductive,” moving from assumptions and [Page 450]hypotheses to data, rather than “inductive,” moving from observed phenomena to explanatory theory. Economic modeling is mathematical and often relies on a standard set of assumptions known as the neoclassical model, which other disciplines do not commonly accept and which is sometimes inimical to the questions they consider.

As researchers apply economic analysis to an everbroader array of human phenomena, including legal problems, economists have come to work with models that relax some of the assumptions of the neoclassical model and that may borrow insights from the work of other disciplines. Accordingly, scholars do some of the most interesting work in the economic analysis of law today in the fields of “law and socioeconomics” or “law and behavioral economics.” Economic analysis has influenced other social sciences as mathematical models and the assumption of individual rational choice have recently entered the work of sociologists and political scientists.