PHILOSOPHY IN ECONOMICS
THE UNIVERSITY OF WESTERN ONTARIO
SERIES IN PHILOSOPHY OF SCIENCE
A SERIES OF BOOKS
IN PHILOSOPHY OF SCIENCE, METHODOLOGY,
EPISTEMOLOGY, LOGIC, HISTORY OF SCIENCE,
AND RELATED FIELDS
Managing Editor
ROBERT E. BUTTS
Department oj Philosophy, The University of Western Ontario, Canada
Editorial Board
JEFFREY BUB, The University of Western Ontario
L. JONATHAN COHEN, Queen's College, Oxford
WILLIAM DEMOPOULOS, The University of Western Ontario
WILLIAM HARPER, The University of Western Ontario
JAAKKO HINTIKKA
CLIFFORD A. HOOKER, University of Newcastle
HENRY E. KYBURG, JR., University of Rochester
AUSONIO MARRAS, The University of Western Ontario
JURGEN MITTELSTRASS, University of Konstanz
JOHN M. NICHOLAS, The University of Western Ontario
GLENN A. PEARCE, The University of Western Ontario
BAS C. V AN FRAAS SEN , The University of Toronto &
University of Southern California
VOLUME 16
PHILOSOPHY IN
ECONOMICS
Papers Deriving from and Related to a Workshop on Testability and
Explanation in Economics held at Virginia Polytechnic Institute
and State University, 1979
Edited by
JOSEPH C. PITT
Department of Philosophy and Religion
Virginia Polytechnic Institute and State University
Blacksburg, Virginia
D. REIDEL PUBLISHING COMPANY
DORDRECHT: HOLLAND / BOSTON: U.S.A.
LONDON:ENGLAND
Library of Congress Cataloging in Publication Data
\Vorkshop on Testability and Explanation in Economics,
Virginia Polytechnic Institute and State University,
1979.
Philosophy in economics.
(The University of Western Ontario series in philosophy of
science; v. 16)
Includes bibliographies and index.
1. Economics-Congresses. 2. Economics-PhilosophyCongresses. 3. Economics-Methodology-Congresses. I. Pitt,
Joseph C. II. Title. III. Series: University of Western Ontario.
University of Western Ontario series in philosophy of science; v. 16.
HB21.W67
1979
330' .01
80-27996
ISBN-13: 978-94-009-8396-0
e-ISBN-13: 978-94-009-8394-6
001: 10.1007/978-94-009-8394-6
Published by D. Reidel Publishing Company,
P.O. Box 17,3300 AA Dordrecht, Holland
Sold and distributed in the U.S.A. and Canada
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D. Reidel Publishing Company is a member of the Kluwer Group
All Rights Reserved
Copyright © 1981 by D. Reidel Publishing Company, Dordrecht, Holland
Softcover reprint of the hardcover I st edition 1981
No part of the material protected by this copyright notice may be reproduced or
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PREFACE
The essays in this volume are the result of a workshop held at Virginia
Polytechnic Institute and State University in April, 1979. The assembled
group was diverse, comprised of philosophers, economists, and statisticians.
But it was not the complete group on which we had initially planned. Richard
Rudner was in France on sabbatical and was unable to fly back for the occasion. His untimely death the following summer saddened us all, for we lost
not just a colleague but a friend. This book is dedicated to him out of the
spirit of friendship and in appreciation for the ground breaking work he did
in the philosophy of the social sciences.
In addition to the participants, a number of people worked very hard to
make our gathering possible. We are especially indebted to Dean Henry Bauer,
Dean Ernie Stout and Dean John Ballweg of the College of Arts and Sciences
at Virginia Tech for their good will and support, both moral and substantive.
We would also like to thank Professor Guy Hammond, Head, Department of
Philosophy and Religion, for his council and assistance. Our special thanks to
Jeanne Keister and Betty Davis for their patience with unending typing and
reservations, and finally to Barbara Kersey, always at hand, ever helpful.
Without them nothing would have transpired.
The final versions of the papers would not have been possible without the
enormous cooperation of the authors themselves. With good spirit and incredible speed they not only commented on each other's work, but responded
cheerfully to my constant requests for instant productivity.
Blacksburg, Virginia
June, 1980
J.C.P.
T ABLE OF CONTENTS
PREFACE
V
JOSEPH C. PITT / Introduction
EDWARD J. GREEN / On the Role of Fundamental Theory in Positive
1
Economics
DANIEL M. HAUSMAN
5
I Are General Equilibrium Theories Explana-
tory?
17
R. J. WOLFSON / New Consumer Theory and the Relations Between
Goods
33
ALEXANDER ROSENBERG / A Skeptical History of Microeconomic
Theory
47
STEVEN STRASNICK / Neo-Utilitarian Ethics and the Ordinal Re-
presentation Assumption
E. F. McCLENNEN / Constitutional Choice: Rawls versus Harsanyi
RA YMOND DACEY I Some Implications of 'Theory Absorption' for
63
93
Economic Theory and the Economics of Information
I On the Use of Laboratory Experiments in Economics
I. J. GOOD I Some Logic and History of Hypothesis Testing
DEBORAH MAYO I Testing Statistical Testing
111
137
149
175
INDEX
205
LOUIS L. WILDE
Dedicated to
Richard R. Rudner
JOSEPH C. PITT
INTRODUCTION
For much of the second quarter of this century, logical positivism was the
dominant philosophy of science in the Anglo-American world. It always was
under fIre, but gradually those attacks mounted in the 1950s and 1960s
began to take their toll and the possibility of alternative programs began to be
investigated. A number of such alternatives were promulgated and in the
wake of their success in attracting devotees positivism seemed to wither on
the vine. But if the history of thought teaches us anything, it is that not only
are entire research programs rarely eliminated without a trace, but also that
such large scale programs leave legacies and that it is often some time before
they can be discerned.
It appears that we are just now beginning to see the legacy of logical
positivism. Further more, if the papers in this volume. are to be considered
any kind of evidence at all concerning the ebb and flow of philosophical
ideas, that legacy may come as something of a pleasant surprise. For we
now fInd in philosophical discussions of, of all places, the social sciences, and
in particular of economics, an awareness of many of the positivists more
cherished concepts. Of distinct note is the general problem of the relation
between pure and applied theory and the adjacent problem of testing hypotheses. It is these issues that the papers in this volume basically address.
These are not exactly the same concerns of Carnap, Neurath, and Reichenbach, for their objective was the construction of a heirarchically arranged
axiomatized structure in which all the sciences could be logically interpreted,
if not reduced. But legacy is not to be equated with direct descendance. It is
rather what we are bequeathed. In this case, it is a vision of the goal of scientifIc inquiry: a systematic and rigorous body of knowledge.
Furthermore, the legacy entails more than merely the statement of a goal.
We are also left with a number of specifIc concerns which, if examined in the
context of specifIc areas, can help guide us toward the point where we are
in a position to determine if we have achieved the goal. As noted above, there
is one such concern in particular which the essays here help illuminate, the
relation between pure theory and its applications. And while most of these
papers deal expressly with economic theory or the problems associated with
its application, the main philosophical issue behind the scenes remains the
J. C. Pitt (ed.), Philosophy in Economics, 1-4.
Copyright © 1981 by D. Reidel Publishing Company.
2
JOSEPH C. PITT
positivist's demand that an empirical theory be testable. As a general topic it
has a number of dimensions.
We find, for example, in Green's paper, not only the distinction between
pure and applied theory, but an attempt to show what bearing each has on
the other. Hausman picks up this theme by examining the explanatory dimension of certain applications of what some have called the basic economic
theory, namely, equilibrium theory. The major thrust of his argument concerns the amount of information we can expect to extract from an abstract
mathematical structure and how it is affected when supplemented by auxiliary
theory. Moving to a more specific example of this problem, Wolfson examines
the consequences of a new theory of consumer behavior for our understanding of increase in simplicity in structure and increase in empirical fruitfulness.
Rosenberg offers a critique of goals and objectives of economic theory
with the objective of raising in bold type the question of how much we can
expect economic theory to produce. Dacey follows this up by giving a specific
example of some limitations by exploring the fascinating phenomenon of
theory absorption, the process whereby a consumer internalizes the precepts
of a theory, thereby altering the ability of the social scientist to predict his
behavior. The crux of this argument is the effect of theory absorption on our
understanding of rational choice.
Strasnick extends the examination of this problem by considering the
consequences of certain features of the initial assumptions employed in
formulating the principles of von Neumann-Morgenstern theory of games,
an issue examined further by McClennen. The results of these two papers
illustrate the effect of initial theoretical assumption on specific outputs of
a theo!y.
Wilde continues the examination of that same set of worries, only by
proceeding from "the other end." He addresses the problem of formulating
adequate experiments using laboratory animals and moves us closer to understanding the difficulties inherent in turning highly abstract mathematical
theories into experimentally testable ones. The problem of hypothesis testing
in general is reexamined by 1. J. Good, while Mayo confronts the enormous
problem of unraveling the complexities of using statistical methodologies.
Over and above noting that these essays are concerned with the limits of
economics in terms of its initial assumptions, its testability, its explanatory
scope, and simplicity, what else can we say of them? What else need we say?
The kinds of questions addressed and the varied backgrounds of the writers
speak to the durability and deep-grained character of these worries. It is important to remember that these papers are the result of an interdisciplinary
INTRODUCTION
3
workshop on testability in economics. The consequence is fascinating. We
find that a full discussion of the problem reads almost like the table of contents from either Rudner's Philosophy of Social Sciences or Hempel's Aspects
of Scientific Explanation. And if the authors were all philosophers, that
would be understandable. But they are not. They come from areas as diverse
as statistics, business management, and economics, in addition to philosophy.
There are two ways to read these results: skeptically and not so skeptically.
On the skeptic's side, it could be observed that this result is due to what we
might call 'intellectual time-lag', for it may be argued that the reason why
these issues are brought up by non-philosophers is that philosophers have
dealt with them for some time, and surely by now we have made some impact
on non-philosophers. Furthermore, the reason why these are hot issues in the
social sciences and not in the hard sciences is that they have been exhausted
in the hard sciences and philosophically minded thinkers in those areas are
now concerned with the really tough issues which require detailed knowledge
of the specific theories.
In response, I would point out first that the details of economic theory
contained in the papers here are hardly superficial. Second, it is not clear
that problems of explanation and testing have been exhausted at any point.
Finally, it may be that one reason why these issues are not being pursued in
the physical sciences with a~ much vigor as in the social sciences concerns
expected degree of complexity. Social scientists come to their disciplinary
studies knowing that sooner or later they have to deal with the ultin1ate
variable, man. Investigators concerned with the hard sciences may have
assumed at some early point that without man their problems will be minimized. It just may be that currently they are suffering from the failure of that
set of expectations.
But if we turn to the not so skeptical view of why traditional philosophical
problems keep cropping up in studies of the social sciences, we may just have
an answer that avoids questions of specific difficulties of disciplines, etc.
These philosophical issues arise because the answers to them provide us with
a constitutive account of the cognitive significance of scientific inquiry. To
find that the same philosophical problems occur in discussion of the social
sciences as in other sciences is one way of reassuring ourselves that even
where human social interaction is the subject matter, scientific results are
still possible.
In effect, what we see here is a strong testimonial to the depth of understanding that the logical positivists, with all their faults, had of science. Their
specific answers may have failed, but their questions remain with us; so much