Introduction
What exactly is the method?
The first thing to grasp about the method is that it does not refer to a specific methodology. There are numerous systems of carrying out an action, each having its own purpose, aims, and distinct means of achieving those goals. The study of how people learn and come to action is known as a method.
The method has two connotations:
1) a discipline or philosophy of how to do something;
2) a set of instructions for carrying out the procedure to obtain a result.
In other words, procedure relates to how you arrive at your conclusion (s). In this post, we will look at the induction and deduction processes for developing economic theory.
Every science follows certain methods for the formation of its laws, principles, and theorems. According to some economists, economics is a science. It also adapts certain methods for the discovery and formulation of its laws and principles. The study of how economic agents, such as households and enterprises, interact with one another to generate and consume goods and services is known as the methodology of economics. It entails using theoretical models to study economic activity and forecast future trends. Economists collect information using a range of methods, including surveys, interviews, experiments, and statistical analysis. Economics seeks to understand how economic systems function and how they might be improved. Economists can establish policies that encourage economic growth and stability by studying the interactions between different economic agents.
I believe economic methodology is founded on two major ideas. One principle, laissez-faire, advocates for a policy that leaves economic decisions to market forces rather than government intervention. The other principle advocates interventionism, or government intervention in the economy, to achieve social welfare goals like poverty reduction or to generate positive externalities (public goods) in an imperfect market system.
Broadly speaking, there are two methods of investigation available to economists.
Deductive method: The deductive process draws a new conclusion from the general to the specific, or from the universal to the individual. According to some economists, it is a declining process. The term "deductive" refers to reasoning that begins with a premise. Deductive reasoning is merely one type of logic that has been acknowledged since ancient times (Cedric, 1997). The syllogism is an example of this type of reasoning: A = B; thus, A implies B. If both premises are true in this form of argument, then the conclusion must also be true. Because economics deals with facts that have previously been observed and proven by previous experiments or empirical evidence, this style of argumentation can be used. Economic theory deduction entails developing a theoretical model and then testing it against reality. Economic theory is not founded on empirical facts. Its foundation is logic, facts, and mathematical formulae. Adam Smith popularized this deductive strategy in his book The Wealth Of Nations. The Wealth of Nations by Adam Smith examines the function of markets in society. In this work, he contends that if markets are left to their own devices, they will lead to societal improvement through competition.
The steps in the deduction approach are as follows.
- Identification of the issue
- Definition of technical terminology and variables
- Having preconceived notions
- The process of logically deducing derived implications
- Hypothesis development
- Making and testing predictions
- Predictions and facts are in harmony.
- If predictions and actuality contradict each other, changing assumptions as needed
Inductive method: The inductive process draws a new conclusion from the specific to the general, or from the individual to the universal. According to some economists, it is an ascending process. The induction method is a scientific method for developing a hypothesis based on known data. The scientist begins with known facts and then develops a hypothesis based on them. The scientist then uses experimental procedures to validate his or her idea. Because it requires generalizing from observation or experience, the induction approach is also known as the reasoning method. In contrast to the deductive process, induction begins with observations and experiences (facts) and attempts to derive generalizations based on those findings. As a result, induction is empirical.
The steps in the induction approach are as follows.
- Identification of the issue
- Data collection and some preliminary thinking
- Data processing to find out how they are related
- Develop a theory and refine it through statistical methods
- Make predictions and test them
- If the prediction is in agreement with the fact, accept it as a theory
- If the predictions are in conflict with facts, a theory is discarded in favor of a superior alternative
- Collect more data if the theory is discarded
By way of illustration, let us distinguish between induction and deduction.
Assume in the deduction process that all females are capable of bearing children. Aleida is a female, as we discovered. We decide that Aleida is the mother of the children.
Lucas's redness of the skin after being licked by his pet(dog) is observed in the induction approach. We discovered that it is a symptom of dog allergies. We hypothesized that Lucas is allergic to dogs.
Recent Economic Developments
Recent economic methodology improvements have witnessed a trend away from traditional theoretical approaches to economics and toward more empirical methods. The increased availability of data, as well as the development of advanced statistical and computational techniques, have fueled this trend. These new tools enable economists to analyze big datasets and find patterns and trends that may have gone overlooked previously. Furthermore, the emergence of behavioral economics has resulted in a greater emphasis on understanding how individuals make decisions in real-world situations, which is an important component of economic research. Finally, there is a growing emphasis on analyzing economic techniques critically to better understand their strengths and flaws.
What is the purpose of developing economic theory?
People make decisions based on costs and benefits, according to the basic concept of economic theory. To make these decisions, they must weigh the costs and benefits of each potential option. The cost is defined as all the money or other resources expended in making a choice or making an investment. The benefit, on the other hand, is defined as all the money or other resources earned as a result of making a decision or investing. Thus, economic theory must be dynamic and universal.
Conclusion:
The primary goal of any discipline is to increase knowledge and understanding of scientific procedures and theories. In summary, some fundamental principles of economics should be empirical data investigation and testable theory creation. There is a serious disagreement over economic methodology. I believe that the discipline should be objective rather than subjective. It is critical to understand the technique since it clarifies how results are formed from scientific studies.