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The Scientific Method

The Scientific Method. Positive Vs. Normative Economics The Scientific Method Necessary & Sufficient Conditions Testing Causality Fallacious Arguments Testing Theory. Positive Vs. Normative Economics. Positive Economics Statements of fact & logical deductions

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The Scientific Method

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  1. The Scientific Method • Positive Vs. Normative Economics • The Scientific Method • Necessary & Sufficient Conditions • Testing Causality • Fallacious Arguments • Testing Theory

  2. Positive Vs. Normative Economics • Positive Economics Statements of fact & logical deductions Ex: If it rains the football field will get wet. • Normative Economics Statements about what should be (value judgments) Example: The football field is better when it is wet.

  3. Carefully study it. Systematic Observation & Measurement Observe a Phenomenon The Scientific Method Develop a theory to explain the data Confirm / Re-examine Not Prove or Disprove Check the implications of your theory against new data from similar circumstances

  4. Necessary & Sufficient Conditions • A is said to be a sufficient condition for B. If A happens B will be guaranteed to occur. • EX: Ceteris Paribus, if it rains then the football field will be wet. Necessary & Sufficient Conditions.

  5. Testing Causality • If A is observed and ceteris paribus B does not occur then the idea that A causes B is called into question. • EX: Theory: C.P. Price is negatively related to quantity demanded. • We observe price falling and ceteris paribus quantity demanded also falls. Does the data support the theory?

  6. Testing Causality • Econometrically we can estimate an equation for demand. • Q = f(Price, Income, Other Variables) • What is the predicted sign on the coefficient of price? (Is it significant?)

  7. Fallacies • Denying the antecedent: It did not rain therefore the football field cannot be wet (How about a sprinkler system?) • Affirming the consequent: The field is wet therefore it must have rained. (Sprinklers may have been on)

  8. Contrapositive • The only logical equivalent to A=> B is the contrapositive statement ~B => ~A. • EX1: If it rains then the field will be wet. (Contrapositive) The field is dry therefore it did not rain. • EX2: If cigarettes are addictive then past consumption influences present consumption. (Contrapositive) If past consumption does not influence present consumption then cigarettes are not addictive.

  9. Competitive Balance in the NFL • Measuring Competition: HHI =  (MSi)2 • MSi = Market Share for a Team = (Wins for that team / # of League Games)

  10. Factors Affecting Competition • HHI = f (FA/SAL, EXPAN, EXPAN(1) STRIKE, PLAYER TALENT, HHI(-1)) • FA/SAL = Free Agency/ Salary Cap Year 1993 • EXPAN= Expansion Year • EXPAN (1) = Year after expansion • STRIKE = Strike Year • Player Talent Concentration

  11. PLAYER TALENT = HHIPF + HHIPA • HHIPF =  (Points Scoredi / Total Points Scored in the League)2 • HHIPA =  (Points Scored Againsti / Total Points Scored Against in the League)2

  12. Results

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