Philosophy of Science and Economics: Positivism, Popper, and After

1. Philosophy of Science and Economics: Positivism, Popper, and After A Story in Four Parts The Philosophy of Science Background a. Positivism (Logical Positivism and Logical Empiricism) b. The Popperian Tradition 2. Two Mainstreams: Economics and Philosophy of Natural Science in the Mid-20th Century 3. Economic Methodology Then (1980s & 1990s) and Now (recent developments)

2. Philosophy of Natural Science in the 20th Century "If it is true that there are but two kinds of people in the world - the logical positivists and the god-damned English professors - then I suppose I am a logical positivist." [Glymour, 1980, ix] "Once, in those dear dead days, almost, but not quite beyond recall, there was a view of science that commanded widespread popular and academic assent. This view deserves a name. I shall call it "Legend." ... So much for the dear dead days. Since the 1950s the mists have begun to fall. Legend's lustre has dimmed. While it may continue to figure in textbooks and journalistic expositions, numerous intelligent critics now view Legend as smug, uninformed, unhistorical, and analytically shallow." [Kitcher, 1993, pp. 3-5]

3. Logical Positivism and Logical Empiricism Three Periods of "Positivism" • 19th Century Positivism • Logical Positivism: Primarily 1930s Vienna • Logical Empiricism: mainstream philosophy of natural science 1940-1980 (and continuing on in a slightly modified way today – at least as the obligatory point of reference)

4. 1a. Positivism (Logical Positivism and Logical Empiricism) Logical Positivism: Associated with the Vienna circle 1920-35. Key figures include Schlick, Carnap, Reichenbach, Neurath, Ayer (in UK), Wittgenstein (early), … Self-consciously scientistic (with narrow conception of "science"). Goal to replace all philosophical "knowledge" with knowledge in the image of science.

5. Two types of meaningful discourse (only two types). 1. Analytical Knowledge: mathematics and logic. Nonempirical, a priori. 2. Scientific Knowledge: Science (particularly natural science). Empirical and a posteriori. Meaningless of Metaphysics (and everything else not in the previous two categories).

6. Verifiability criterion of meaningfulness: for a sentence to be meaningful it must be "in principle verifiable," that is, it must be possible to specify, at least in principle, the conditions under which the sentence would be true; "observational evidence can be described which, if actually obtained, would conclusively establish the truth of the sentence" (Hempel, 1965, p. 103).

7. Basic Logical Positivist View of Scientific Theories (Four parts) 1. Logical vocabulary and formal rules of inference (logic, mathematics, set theory, …) 2. Theoretical vocabulary (VT) consisting of theoretical terms (force, mass, gene, friction, electron, price level, real output, utility function, profit, …) • Observation vocabulary (V0) consisting of terms that are directly observable (the empirical basis of science) • Correspondence Rules (C) relating/translating each of the theoretical term in VT to the observational language V0. Each theoretical term will have an explicit definition – will correspond to – in the observational vocabulary.

8. Logical Empiricism = Received View = Legend (Revised-Reformed, 2nd generation logical positivism): Richard Braithwaite, Carl Hempel, Ernest Nagel, and others. Most work done in the U. S. by philosophers who had studied in/with the Vienna Circle. Academic professionalization of "fields" within philosophy. Hempel, Carl G. (1965), Aspects of Scientific Explanation. N. Y.: The Free Press. Hempel, Carl G. (1966), Philosophy of Natural Science. Englewood Cliffs, NJ: Prentice-Hall. Nagel, Ernest (1961), The Structure of Science: Problems in the Logic of Scientific Explanation. N. Y.: Harcourt, Brace & World. Salmon, Wesley C. (1966), The Foundations of Scientific Inference. Pittsburgh, PA: University of Pittsburgh Press.

9. Many many small changes from logical positivism, but the three most important are: • Gradual Erosion of the Theory/Observation Distinction • Realist vs. Instrumentalist View of Theories • D-N Model of Scientific Explanation

10. "Furthermore, there remains no satisfactory general way of dividing all conceivable systems of theoretical terms into two classes: those that are scientifically significant and those that are not; those that have experiential import and those that lack it. Rather, experiential, or operational, significance appears as capable of gradations. ... experiential significance presents itself as capable of degrees, and any attempt to set up a dichotomy allowing only experientially meaningful and experientially meaningless concept systems appears as too crude to be adequate for a logical analysis of scientific concepts and theories." (Hempel, 1965, pp. 131-32) Debate over the Cognitive Status of Scientific Theories: The instrumentalist view of theories versus the realist view of theories In its simplest form "instrumentalism" says that scientific theories are merely instruments for making empirical predictions; on the other hand, the simplest version of scientific "realism" says that scientific theories contain statements that can actually be true or false.

11. Scientific Explanation (Redescripton in Early Logical Positivism vs. Explanation in Logical Empiricism)Deductive-Nomological (or D-N) model of scientific explanation.Schematically then, a D-N explanation will take the following general form. C1, C2, . . . Cn L1, L2, . . . Lm (explanans) ___________ E (explanandum)where each Ci represents a sentence that describes an initial condition, and each Li represents a general law.

12. 1b. Karl Popper and the Popperian Philosophical Tradition Karl R. Popper (1902-1994) Logik der Forschung (1934)[English translation as The Logic of Scientific Discovery (1968)] The Poverty of Historicism (3rd ed. 1961) Conjectures and Reputations (2nd ed. 1965) The Open Society and Its Enemies (2nd ed. 1966) Objective Knowledge (1972) Unended Quest: An Intellectual Autobiography (1976) Realism and the Aim of Science (1983) The Myth of the Framework (1994)

13. Popperian Falsificationism: Popper's story about Marx and Freud. Confirmation is easy. Good science involves risk. A scientific theory will stick its neck out! Falsification (not confirmation): Popper's "solution" to the problem of Induction: Falsification not Confirmation. There is no Induction in Science. Testability is falsifiability. Modus Ponens Modus Tollens AB AB A ~B Therefore B Therefore ~A Demarcation Criterion between Science and non-Science: For a theory to be "scientific" it must be potentially falsifiable by at least one empirical basis/basic statement.

14. The Growth of Knowledge Corroboration/Testability: What if nonfalsified? Choose the more severely tested (most corroborated) or the more testable (most potentially falsifiable). The existing body of scientific knowledge is all falsifiable, but not falsified scientific theories. Bold Conjecture and Severe Tests Conjectures and Refutations Novel Facts/ Non-Ad-Hocness The problem of Ad-hoc theory adjustments. Avoid ad-hoc theory adjustments through novel facts/novel corroborations.

15. Popper on Social Science/Economics (Situational Analysis-SA and the Rationality Principle-RP) "My views on the methodology of the social sciences are the result of my admiration for economic theory: I began to develop them, some twenty-five years ago, by trying to generalize the method of theoretical economics." (Popper, 1994, p. 154 SA explanation of why agent A did act X can be given in the following schematic form.

16. 2. Two Mainstreams: Economics and Philosophy of Natural Science in the Mid-20th Century The Question here (Hands 2007) is: Why did mainstream economics look so much like mainstream philosophy of natural science during the period (roughly) 1945-1965? Two Parts: • Show that in fact the did "look so much alike" • Suggest some of the reasons why that may have been the case (just a start on a much more detailed historical investigation)

17. The Similarities are Uncanny • Both stabilized during this time: they moved from interwar diversity to a single dominant paradigm in the postwar era (neoclassical synthesis in economics and logical empiricism in philosophy of natural science. • The stabilization in both fields involved a formalist revolution. • Rationality: Both fundamentally concerned with rationality. It is economic rationality in the case of economics and scientific rationality in the case of the philosophy of science. Economic rationality is a version of practical rationality (what it is rational to do) while in philosophy of science it is epistemic rationality (what it is rational to believe), but both focus on rationality. • Both have a positive/descriptive aspect: economics is concerned with the prediction and explanation of economic behavior while philosophy of science is concerned with describing the practice of the best scientists.

18. The Similarities are Uncanny (continued) 5. Both also have normative aspects. In economics there are two: at the individual level rational choice theory tells agents what they ought to do in order to be rational, and at the social level the theory supports an ethically normative welfare economics. Philosophy of natural science also involves normativity at both the individual and social levels: at the individual level it tells scientists what they ought to do to produce scientific knowledge and a the level of the scientific community it guides science policy and institutional design. 6. After 1965 or so both were challenged wrt descriptive inadequacy. In economics Keynesian theory was empirically challenged during the 1970s and microeconomics was challenged later by experimental & behavioral economics, while the challenge to philosophy of science came from Kuhn and others. 7. Both reconciled empiricism/prediction and realism/explanation in ways that relieved early tensions between these two aspects of the programs.

19. Okay so why? • The Viennese Connection: origins of both logical empiricism and mathematical economics (Walrasian general equilibrium, game theory, and econometrics) • The Harvard Connection (Science of Society Discussion Group, Samuelson's writing Vanevar Bush's Science, the Endless Frontier. • The Operations Research Connection (Mirowski's story). Both sought to reconcile military inspired "command and control" with democracy in the context of the cold war. These are just the tip of the historical iceberg.

20. 3. Economic Methodology Then and Now Changes in Economic Methodology During the Last 35 (or so) Years The development of a “field” The changing relationship between orthodox and heterodox economics Recent changes in macroeconomics versus recent changes in microeconomics A two-part story: The period (roughly) 1975-2000 Recent developments

21. Two Exemplary Economic Methodologists of the period 1975-2000: Mark Blaug (1927-2011) and Terence Hutchison (1912-2007) “I argue in favor of falsificationism, defined as a methodological standpoint that regards theories and hypotheses as scientific if and only if their predictions are at least in principle falsifiable, that is, if they forbid certain acts/states/events from occurring … In addition, I claim that modern economists do in fact subscribe to the methodology of falsificationism: … I also argue, however, that economists fail consistently to practice what they preach: their working philosophy of science is aptly characterized as ‘innocuous falsificationism’.” (Blaug, 1992, p. xiii).

22. Common Features of the (Popperian) Methodology of Blaug and Hutchison Very Critical of Heterodox Economics because it Failed to Make Bold Conjectures and Expose them to Severe Empirical Tests Also Very Critical of Neoclassical (particularly Walrasian) Economics because it Failed to Make Bold Conjectures and Expose them to Severe Empirical Tests Bottom Line: Economic Methodologies so “tough” that nothing – Heterodox or Neoclassical – Passed the Test. But also No Practical Guidance for how to Improve Practice. No Constructive, only Destructive, Criticism.

23. The Recent Literature: The Debate Over Whether there is New More Pluralistic Mainstream Debate Has Experimental Economics, Behavioral Economics, Neuroeconomics, Complexity Theory, and Other Recently Expanding Fields within (micro) Economics Changed the Mainstream? “Economics is Moving Away from Strict Adherence to the Holy Trinity – Rationality, Selfishness, and Equilibrium – to a More Eclectic Position of Purposeful Behavior, Enlightened Self-Interest, and Sustainability” (Colander, Holt, and Rosser, 2008, p. 31) Maybe, or maybe not, but there is a tendency in that direction, and the research is neither neoclassical nor heterodox.

24. The Fields Identified as the New More Pluralistic Mainstream Certainly Are Where Most of the Recent Methodological Research is Being Done Significant Texts in Recent Methodology: Bardsley et al. (2010), Guala (2005), Reiss (2007), Ross (2005), Santos (2010), and Others … Example of The Elgar Companion to Recent Economic Methodology The Practitioner’s View: Gul and Pesendorfer (2008)

25. The Lessons From This Recent Literature The Majority of Recent Methodological Research is in these New Pluralistic (micro) Economic Fields The Theory Being Methodologically Investigated is Neither Strictly Neoclassical Economics Nor Traditional Heterodox Economics The Literature is Less Universalistic, More Local and Naturalistic, and More Sensitive to the Practical Concerns and Specific Features of the Relevant Field It is Particularistic, but it is Often Critical, and is Based on Philosophical Justification and Assessment