Tuesday, January 5, 2016

The Science of Economics

Many have wondered if economics is, in fact, science. Those who doubt it point to lack of testability and replicability of experiments. Natural experiments in macro systems are often unique and as they say in biological sciences, " a n of 1" is not useful. Further, predictions based on accepted theories often miss the mark. These appear to erect an insurmountable barrier to legitimizing the field of economics.

However, it is worthwhile to explore what is considered to be science. Physics, arguably the grandest of sciences, suffers from the same issues. Sure, human scale Physics is able to make eminently testable predictions based on Newtonian mechanics. Economics could also make such trivial predictions - for example on how demand will change with prices. And, quantum mechanics in the last hundred years has propelled the field further making fantastic and testable hypotheses. Whole industries have grown around it but those with knowledge and associated humility will contend that much remains unknown. In economics, there has been an analogous movement - where uncertainty and flexibility govern and not numbers in a spreadsheet. However, in economics, this has been delegated as something not many understand and thus not fully compatible with academic tenure. That is fair, we have seen that before but that does not indicate that the field is not scientific.

In biological sciences, experiments have been creating havoc. It is almost as if a hypothesis, once stated, could always be proven. In the world of empiricism, this may point to biases - confirmation and conformation - but more importantly in commerce, it showcases a lack of understanding of sunk costs (pardon the non-scientific term). Once hundreds of millions have been plunked into "R&D," the "drug" has to work, for without that, lives of many - if not the patients but the employees of large companies, could be at risk. So, testable hypotheses in themselves, albeit necessary, are not sufficient for science.

The dogma of science may be constraining development in many fields - such as economics, policy, psychology and social sciences. Those who are dogmatic may need to look back into their own fields before passing judgement.