Scandinavian Working Papers in Economics

HERO Online Working Paper Series,
University of Oslo, Health Economics Research Programme

No 2003:18: Defence of Absurd Theories in Economics

Morten Nordberg () and Ole Jørgen Røgeberg ()
Additional contact information
Morten Nordberg: The Ragnar Frisch Centre for Economic Research, Postal: Gaustadalleen 21, N-0349 Oslo, Norway
Ole Jørgen Røgeberg: The Ragnar Frisch Centre for Economic Research, Postal: Gaustadalleen 21, N-0349 Oslo, Norway

Abstract: Theories that involve plainly false and even bizarre assumptions are argued to have an important role in bundling empirical facts in a way that allows these to be understood, handled and used as modules in the construction of mechanisms by economists with human cognitive limits. Absurd theories are subcomponents used in a valid explanatory strategy as long as the mechanisms only derive the implications of the facts summarised. This provides a defence and explanation of many economic theories, but also imposes hard limits on such theorising.

Keywords: As-if theory; Economic methodology; welfare economics

JEL-codes: B41; D00

25 pages, June 22, 2009

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