Probability, econometrics and truth. The methodology of econometrics (Q2706551)

The book is a methodological investigation of the aims and methods and of the philosophical as well as the probabilistic foundations of economic research. The author's starting point is Keynes' reproach to Jan Tinbergen, one of the founders of econometrics, that he is practicing black magic and alchemy. Now, more than half a century later Keynes' comments are repeated today by respected authorities, despite of all the developments in econometrics and in practical experience. The reason for the new skepticism stems to a large extent from the ambiguous results econometric procedures produce, even with respect to the most basic aims of economics. Against this critique the author concludes that the achievements of econometrics can be found where its aspirations are put in the positivist tradition. In addition, although declared dead, the author claims that positivism should be resurrected.NEWLINENEWLINENEWLINEThe Cowles Commission as one of the first economic research institutes thought of econometrics under the heading ``Science is Measurement'', which thus puts econometrics into the tradition of positivism. In the early fifties the motto was changed to ``Theory and Measurement'', reflecting the ambitions of the researchers to integrate econometrics with economic theory and formal probability theory. The new tradition diverted econometrics to Neyman-Pearson testing procedures, away from the positivist tradition of Karl Pearson and Fisher. Simultaneously, in the philosophy of science positivism came under attack and was replaced by methodological falsificationism.NEWLINENEWLINENEWLINEChapter 1 discusses this philosophy, chapters 2 to 4 deal with different approaches in probability theory. The author claims that the Cowles program in econometrics has done the reputation of econometrics much harm. This claim is elaborated in the following chapters. In chapters 6 and 7 the author discusses the transition from probability theory to econometrics. Chapter 8 presents a case study in one of the best episodes of applied econometric inference and shows that the sampling and testing metaphors which dominated econometrics can lead to serious self-deceit. Chapters 9 and 10 offer various arguments and recommend the positivist tradition, in which econometrics was born and to which it should be brought back again.