UNSHACKLING ECONOMICS
| Published date | 01 June 1984 |
| Author | JOHN D. HEY |
| DOI | http://doi.org/10.1111/j.1467-9485.1984.tb00474.x |
| Date | 01 June 1984 |
Scottish
Journal
of
Polmcd Economy.
Vol.
31.
No. 2,
June
1984
Q
1984
Scottish
Economic
Society
REVIEW
SECTION
UNSHACKLING
ECONOMICS
JOHN
D.
HEY
University
of
York
P.
E.
Eari,
The Economic Imagination:
Towards a Behavioural Analysis
of
Choice.
Brighton: Harvester Press Ltd,
1983,
pp. xi
+206.
E5.95
paper,
E15.95
cloth.
J.
L.
FORD,
Choice, Expectation and
Uncertainty: An Appraisal
of
G.
L.
S.
Shackle’s
Theory.
Oxford: Martin Robertson,
1983,
pp.
xiii+210.
E17.50.
N.
M.
KAY,
The Emergent Firm: Knowledge,
Ignorance and Surprise in Economic
Organisation.
London
:
Macmillan, forth-
coming.
Theorising necessarily involves abstraction;
for
otherwise it would simply constitute
a
one-
to-one map of the world, which would be
pointless. There is thus no point in criticising a
theory for the lack
of
realism of its assump-
tions;
on
the contrary, a useful theory necess-
arily has unrealistic assumptions. Rather, the
key issue
is
whether the abstracting has been
done efficiently, and thus whether the resultant
theory encapsulates the essence of the problem
on which it is supposed to shed light. Thus,
while it is illegitimate or misguided to criticise a
theory for the unreality
of
its assumptions, it is
entirely legitimate
to
remark that the essence of
the problem has been abstracted away by the
assumptions of the theory.
For
example, one
would be right to regard as suspect a model of
price-determination in which all agents were
price-takers, or a model of persuasive advertis-
ing with exogenously-given tastes. Unfortu-
nately, however, not all cases are as clear-cut
as these, as we shall see.
Theorising involves two, sometimes three,
main stages. First, the theoretician makes what
he
or
she regards as the “appropriate” abstrac-
tion. This may be conditioned by the existing
development of the subject and by the skills of
the theoretician, as well
as
by more obviously
relevant factors such as the nature of the
economic problem under consideration.
Second, the theoretician pursues the impli-
cations of the abstraction, thereby producing a
set of comparative-static
(or
comparative-
static-type) propositions. A possible third stage
involves the
ad hoc
modification by the
theoretician
of
these implications and pro-
positions in the light of his
or
her perceptions of
the gap between reality and the theory’s ab-
straction, and his
or
her “intuitive understand-
ing”
of
the possible influence of this gap. At this
point, the theoretical findings are
(or
should be)
passed on to the applied economist (who may
well be the same person) whose job it is to
investigate the empirical validity of the
theory’s implications and propositions. This
investigation may suggest some modification
to the initial abstraction, in which case the
above process would be repeated. Eventually,
it is hoped, convergence is achieved. Thus we
observe an
abstraction-solution-modification-
investigation-abstraction cycle, of which the
first three stages are primarily the preserve of
the theoretician.
But the economist
is
not alone in following
such a cycle; clearly other scientists do
so
as
well. But, more importantly,
so
do all human
beings
in
all spheres
of
life;
in particular,
economic agents when faced with economic
decisions. Thus, the typical economic agent
when faced with a consumption
or
investment
or
search
or
insurance
(or
whatever) decision,
follows a similar abstraction-solution-
modification-investigation-abstraction cycle:
first, the agent abstracts the main features of his
or her decision problem, thereby forming a
simplified “theory” of the problem
;
second, the
agent then solves this abstracted
or
simplified
model ;third, the agent modifies the solution in
the light of the perceived gap between reality
and the abstraction; fourth, the solution is
implemented, that is, the decision is taken, and
from this something may be learnt about the
appropriateness of the initial abstraction,
so
202
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