Paul Krugman had a superb paragraph in a column last week [link], explaining how we can’t get away from theoretical models:
[W]henever somebody claims to have a deeper understanding of economics (or actually anything) that transcends the insights of simple models, my reaction is that this is self-delusion. Any time you make any kind of causal statement about economics, you are at least implicitly using a model of how the economy works. And when you refuse to be explicit about that model, you almost always end up – whether you know it or not – de facto using models that are much more simplistic than the crossing curves or whatever your intellectual opponents are using.
This came to mind today as I was commenting on some student work, and felt the need to explain how important it was to have a strong theoretical foundation even if you are working with a well-identified experiment or natural experiment. Here’s what I wrote (with specific references to the paper removed):
Developing a theoretical framework is important for lots of reasons. First, it provides a basis for both deriving hypotheses coherently and also setting us up to draw out implications from the results of the empirical analysis. Right now the hypotheses sort of come from nowhere, based on some intuitions. But this is inadequate motivation. How would evidence in favor of (or against) these hypotheses affect the implicit or explicit models that we rely on to form expectations about the phenomenon you are studying? Second, it helps people who do not care about the specific application you are studying to take interest nonetheless in your research. Identifying the relevant theoretical framework is a way of addressing the all important question, “what more general thing is this a case of”? (Sorry for the hanging preposition.) We want to reduce the specific, applied problem to something that can be analyzed in a general way such that the results of this particular study have implications for other types of actors in other types of situations.
Well that’s how I see it at least.
