Week 1

Chapter 1

Chapter 2
Week 2
Chapter 3- Karl Popper & the Duhem-Quine thesis
 Logical positivism ran into contradictions and eventually became untenable  first noticed by
Karl Popper. Like the logical positivists, Popper wanted to come up with a demarcation
criterion and methodological rule for scientists to follow. He later ran into problems  main one:
Duhem-Quine thesis.
 Karl Popper: studied in Vienna during early days of Wiener Kreis. Interest in: Marx (theory of
history), Freud and Adler (psychoanalysis) and Einstein (theory of general relativity). Struck by
the difference between the supposedly scientific theories of Marx, Freud & Adler on one hand
and Einstein’s on the other. Einstein’s theory  wild, could easily have been falsified, was soon
confirmed! Marx/Freud & Adler’s theories were confirmed all the time according to their
adherents, could not be falsified. Fundamental difference between these theories.
 Demarcation criterion: for logical positivists  scientific theory should be verifiable
(untenable). For Karl Popper  scientific theory should be falsifiable. Note: a theory that is not
falsifiable may still be enlightening.
 Logical positivism: start with observations, use inductions to find regularities, verify until a
scientific law is found  knowledge grows by building certainty upon certainty. Problem:
impossible to conclusively verify a scientific law. Fails in practice.
 Karl Popper: start with problems and conjectures, use deduction to derive implications, test
until an implication is falsified  knowledge grows by learning from mistakes. “Science does
not rest upon rock-bottom.” Advantage: possible to conclusively falsify an implication of a
conjecture  seem much more practical/realistic.
 Popper’s lingo:
1. Scientific theory should have falsifiers  observation-reports which, if true, falsify the
theory.
2. The potential falsifiers of a theory  empirical content (what should not happen
according to theory).
 The more precise the predictions of a theory  the more falsifiers and empirical content it has. A
good theory: has a lot of empirical content (is “risky”) but nevertheless “corroborated” by
empirical data.
 Methodology:
1. Determine whether theory is logically consistent.
2. Determine whether theory is falsifiable.
3. Determine whether the theory would constitute a scientific advance should it survive
various tests  does it explain the same observations as existing theories? Does it
explain some anomalies/solve problems?
4. Deduce predictions from theory and test them. If they are borne out, the new theory is
corroborated  adopted as working hypothesis. If they are not borne out, theory is
falsified  quest for better theory (not abandoned until new one is found).
 Rules of the game: no immunizing strategies allowed  make it immune for falsification.
Immunizations ex ante: make it immune beforehand (general ceteris paribus clause).
Immunizations ex post: ad hoc adjustments to the theory, its domain definition, etc. done if it
appears the theory is not corroborated.
 Popper’s critique of historicism (view that there are “inexorable rules of historical destiny” like
fascism/communism):
1. Human history is a unique historical process  hypothesis about human history cannot
be tested  cannot lead to a “law”. (Not a closed stationary system like our solar
system.)
 2. Regularities in social life vary over time/across cultures  depend on large number of
factors, which cannot be isolated & predictions may be self-fulfilling/defeating.
Regularities are not “laws”  “trends” or “tendencies”.
 According to Popper: historicism  totalitarianism. In favor of an “open society” with
“piecemeal social engineering”. Open society: society with freedom of thought/expression, to
support critical thinking. Piecemeal social engineering: social policy should be done in small
steps  to be able to learn from mistakes. Essential to be critical & learn from mistakes.
 The Duhem-Quine Thesis: often not possible to conclusively falsify a theory  empirical test
always requires background assumptions which may be wrong. This idea was worked out by
Pierre Duhem & Willard van Orman Quine.
 Popper’s demarcation  runs into same problems as the demarcation criterion of the logical
positivists. Both are much less clear cut than they intended.

Chapter 4 – Kuhn & Lakatos

 Logical positivists & Karl Popper  tried to formulate demarcation criterion to make a clear
distinction between science and pseudo-science and provide scientists with a clear
methodological rule to follow. Thomas Kuhn: described how scientists work instead of prescribe
what they should do.
 Normal science: research based upon previous scientific achievements, tries to apply a certain
way of thinking and certain set of research tools to solve problems/explain observations
unexpected to be solved reasonably. I.e. research by scientific community that shares the same
paradigm  characterized by disciplinary matrix:
1. Symbolic generalizations  U(x) for example
2. Metaphyscial beliefs  people have utility functions
3. Values  about research domain/methods
4. Paradigms  standard models (IS-LM)
 Disciplinary matrix  determines which puzzle scientists can and want to solve. Attempt to
solve subset of nature’s puzzle from paradigm’s point of view.
 Scientific progress  as more problems are solved (“mopping-up operations”).
 Commitment to disciplinary matrix  necessary for successful normal science. Resistance to
refutations of elements of disciplinary matrix/resistance to innovations that deviate from it.
 Anomalies: puzzle that cannot be solved within the dominant paradigm. Often ignored at first,
becomes real problem after a while  more and more researchers try to find solution. Some may
find solution deviating from paradigm  new paradigm may emerge.
 Incommensurability: the methodological point of view that two competing paradigms cannot be
compared  components of competing paradigms often fail to understand each other:
1. Disagreement about which puzzles to solve.
2. Misunderstandings  same terms/symbols refer to different concepts.
3. View reality in different way  gestalt switch.
 In the situation of two competing paradigms which are incommensurable (proponents may not
even understand each other)  may lead to paradigm shift: new paradigm expels old one 
takes over dominant position. According to Kuhn: scientific revolution (like political revolution).
Not a rational falsification of old paradigm  competition for support of scientific community’s
members/to rally around different values & beliefs/to change social norms. Cannot compare new
paradigm to old one (incommensurable)  scientific progress? Science is not always rational!
 In macroeconomics: dominant paradigm 1950s/60s  neoclassical synthesis. Anomaly in
1970s: stagflation  economy was stagnating/turning into recession in combination with high
inflation. Robert Lucas: started deviating from paradigm  building macroeconomic models
from microeconomic foundations. Gained more support over time  rational expectations
revolution.
 New dominant paradigm since mid-1990s: new-neoclassical synthesis (modern
macroeconomics)  was this paradigm shift scientific progress?
 Imre Lakatos: ideas of Thomas Kuhn were very controversial  especially the idea that
science does not always proceed in a rational way (as assumed by Karl Popper & logical
positivists). Lakatos played crucial role in embedding the ideas of Kuhn in more traditional ways
of thinking about science. Became colleagues with Karl Popper.
 Popper: science proceeds by having: a (bold) conjecture, falsification, a new (bold) conjecture 
immunizations not allowed.
 Khun: science proceeds by having: long periods of normal science  puzzle solving (paradigm-
based) and sometimes revolutions (paradigm shifts). Falsifications often set aside as anomalies.
 Lakatos: criticized both philosophies  Popper: naïve falsificationism. When theory is falsified,
scientists often try to rescue it (by making adjustments)  immunizations happen all the time!
Maybe even good for scientific progress. Objected to Kuhn’s idea that paradigm shifts are
irrational. Tried to improve/reconcile them  scientific research programs.
 Definition: what Kuhn called a paradigm. According to Lakatos: contained a hard core
(assumptions that cannot be adjusted), defined the research program  negative heuristic.
Protective belt of assumptions that can be adjusted, protects the hard core  positive heuristic.
 Scientific research  characterized by sequence of theories:
1. Research program is theoretically progressive: if each new theory predicts novel facts
(has more empirical content).
2. Research program is empirically progressive: if each new theory’s empirical content is
better corroborated.
3. Research program is degenerating: if it is not theoretically/empirically progressive.
 This improves/reconciles Popper’s and Kuhn’s methodologies. Lakatos proposed sophisticated
falsificationism:
1. Hard core assumptions should not (or cannot) be falsified.
2. Immunizations  theory improvements in progressive research program (adjusting
assumptions in protective belt).
 Paradigm shift is a rational choice to abandon a degenerating research program in favor of a
progressive research program. Lakatos hereby restored rationality as an essential and
characteristic aspect of science.
Week 3
Chapter 5 – The Economics of Science & the Sociology and Economics of Scientific knowledge
 Thomas Kuhn: introduced sociological approach in the philosophy of science by describing how
scientists work.
 The Economics of Science (ES): Robert K. Merton (1910-2003) formed the CUDOS-norms
 preconditions of good science:
1. Communism (communalism): common ownership of scientific discoveries  scientists
give up intellectual property in exchange for recognition and esteem.
2. Universalism: validity of a scientific claim should be evaluated with universal or
impersonal criteria  should not depend on who is making it (or on their gender, race,
status, etc).
3. Disinterestedness: scientists are rewarded for acting in ways that outwardly appear to be
selfless.
4. Organized skepticism: scientific claims should be tested and exposed to rigorous,
structured community scrutiny (before it is accepted).
He pointed out: scientists should not only be skeptical about the claims made by other
researchers but also by claims made by “the powers that be” in society. If the CUDOS-norms are
satisfied, basic research is a public good with positive externalities  should be subsidized!
 Sociology of Scientific Knowledge (SSK): emerged at end of 1960s/beginning 1970s, inspired
by Kuhn and Merton. Definition: study of science as a social activity, uses sociological
techniques. Scientific output depends on social dynamics. Scientific truth or scientific knowledge
(constructed by specific scientific community which they believe to be true) is a social
construction  social constructivism. May or may not be the truth.
Naturalist turn: descriptive approach to science.
 Edinburgh Strong Programme: several examples of failed scientific theories/degenerated
research programs, often caused by wrongheaded ideas  result of political
motivations/economic interests. Sociological approach could be useful to explain why they had
failed. Edinburgh Strong Programme: reaction against “weak” sociological explanations, can
describe failed as well as flourishing research programs. Focus on: “why researchers believe
what they believe”.
 Starting point: truly scientific sociological approach should not start by judging which scientific
communities are successfully pursuing the truth or which are doomed to fail/have already done
so. Sociologists studying scientific communities should take a neutral position which could be
applied to all communities. Considers all scientific knowledge as socially constructed.
Four methodological principles:
1. Causality: focus on causal conditions of scientists’ beliefs  professional training, job
opportunities, …
2. Impartiality: be impartial between true and false beliefs.
3. Symmetry: the same types of causal factors can explain both true and false beliefs.
(follows from 1 & 2)
4. Reflexivity: the same type of analysis can be applied to SSK.
 Laboratory studies: second strand in the sociological literature of science  Karin Knorr Cetina
& Bruno Latour. Try to describe what they observe in a certain scientific community taking an
anthropological approach  naïve perspective (observe). Developed into what’s now called
science & technology studies.
 Actor-network theory: developed by Michel Callon & Bruno Latour. Science is produced in a
network of actors  everything which in one way or another affects the production of scientific
results (humans, nature, background assumptions). All these actors interact in an ongoing and
constantly reconfigured process. May “stabilize” certain scientific explanations for a while.
 In Economics: frustrations about the modern macroeconomic model erupted after  financial
crisis of 2008. Model did not at all predict the crisis. Why did nobody notice it?
- According to Robert Solow: modern macroeconomists not necessarily believe what they do
because their models are right/good descriptions of the real world but  self-selection.
Reminiscent of findings of Edinburgh Strong Programme  also believed self-selection was
the reason scientists abandoned their beliefs.
- According to Laurence Meyer: modern macroeconomics seems to be nothing more than a
social construction  far from reality.
 Katarina Juselius: the consensus view in economics does not make sense from a scientific point
of view  appears to be a consensus view, supported by network of high impact journals and
their editors. This view may enjoy some stability for a while, different network of editors could
have supported a completely different view  reminiscent of actor-network theory.
 Paul Romer: scientists do not always hold the beliefs they have because of sound empirical
evidence based on facts  reminiscent of Edinburgh Strong Programme. Many economists hold
beliefs out of fear for “big names”. Also reminiscent of actor-network theory: few hugely
influential actors who support and stabilize a certain view in economics  inferior to the one
held decades ago.
 Juselius & Romer: point to a failure to live up to Merton’s CUDOS-norms such as the
organized skepticism and universalism norm.
 Economics of Scientific Knowledge (ESK): study of science as an economic activity using
economic techniques  scientific output depends on the incentives that scientists face. Also
belongs to naturalistic turn: descriptive approach to science. Inspired by Robert Merton’s
Economics of Science  sometimes also called the new economics of science.
Incentives in an open science system: according to Partha Dasgupta and Paul David:
1. Open science system: scientific results are quickly and readily available to all interested
parties (who can check/test them).
2. Incentives to be first: scientists who are first, gain reputation.
 open science system is incentive-compatible with (reputational) reward system based
on successful claims to priority. Incentive to be first goes hand in hand with communism,
disinterestedness and organized skepticism norms of Robert Merton. Produces
breakthroughs.
 Lock-in effects (Paul David): incentives to keep using a certain technology/methodology.
Causes path dependency: academic discipline/scientific research may be locked in certain
direction.
 The effect of the division of cognitive labor: Philip Kitcher (unlike other researchers) did start
from assumption that there was something like truth. Scientific beliefs may lead to things that are
truly justified  reveal how world/nature works. At the same time  not all beliefs of scientists
are justified. According to Kitcher: incentives to specialize but also coordinate  a socially
optimal division of cognitive labor maximizes the ratio of “true justified beliefs” in the total
number of beliefs.
In Economics: some economists unhappy with mainstream economics after financial crisis
(2008). Dissatisfaction can be understood through ESK insights  especially: scientists facing
incentives making it impossible to abandon mainstream methodology. Pointed out multiple times
by David Colander: incentives that researchers face make it hard to deviate from mainstream
paradigm. Hard to translate research into sensible policy advice, instead  face incentives to
continuously refine/extend existing models. Because of this  “stuck” in existing paradigm.
Interesting to note: failure to live up to CUDOS-norms!
  SSK and ESK implications:
1. Relativism: view that scientific knowledge is not objective, does not necessarily reflect
the reality  depends on historical context. SSK is clearly relativist, ESK sometimes as
well. Self-defeating? Reflexivity in Edinburgh Strong Programme implies their
explanations are not objective either.
2. Realism: view that world exists independently of our theories and thinking about it 
there to be “discovered”/“understood” by scientists. SSK and ESK not necessarily anti-
realist  question whether scientists really discover objective truths about the world.
Reason: relativism and doubts whether way of science leads to better understanding of
the world. Question of objectivity and rationality of scientific output  furious reactions:
science wars.
3. Value-neutral? SSK and ESK: naturalistic turn  descriptive approach to science. This
suggests value neutrality  not the case because of their relativism. Note: descriptions
are never completely value neutral anyway (background theories/assumptions).

Chapter 6 – The Rhetoric Approach, Postmodernism and Pluralism

 Rhetoric approach: developed by economists to better understand process of economic research
 part of broad movement (postmodernism). Rhetoric approach = conversation analysis 
between scientists trying to persuade each other of their theories/validity of scientific results.
Developed by and for economists. Based on:
1. Insights from psychology.
2. Classical Greek rhetoric consists of: logos  message should be internally consistent,
logical, clear; pathos  messenger should appeal to audience’s emotions & ethos 
messenger should be trustworthy/credible.
 logos is objective, pathos & ethos subjective.
Explores:
1. How ideas/arguments/results are disseminated  seminars, conferences, journals…
2. How scientists persuade their colleagues  arguments from authority:
acknowledgements, advanced mathematics & statistics; stories: intuitive justification of
mathematical model (lends credibility), analogies/approximations/caricatures; small
number of “standard” stories.
3. Metaphors  figurative concepts that convey rich associations (Adam Smith’s invisible
hand).
- Akerlof’s market of lemons (story example): buyers cannot distinguish between bad quality
lemons and good peaches. Not willing to pay much  chance of ending up with lemon.
Sellers of peaches not willing to sell at low price  leave market (only lemons left) 
buyer’s price will lower more, eventually leave  market collapses.
= asymmetric information  adverse selection  may lead to market collapse.
- Diamond’s coconut model: everyone owns a palm tree but cannot consume their owns
coconuts  have to find someone to trade with. Two equilibria: people pluck lots of coconuts
each day then trade and eat them  everyone knows effort of climbing tree is worth it;
nobody climbs the tree because others don’t either  nobody to trade with.
 multiple equilibria, coordination failure (to combine efforts and pluck coconuts), self-
fulfilling prophecy (predicted that nobody plucks them  nobody will).
Both models cannot be verified/falsified! But: both scientific breakthroughs.
 Deirdre McCloskey: developed rhetoric approach  how do economists reason/persuade each
other. Discovered gap  how economists claim to do research and how they do research, not the
same!  Critique on positivism as a methodology for economics. Positivism: genuine knowledge
exclusively based on sense data (no synthetic a priori statements). According to McCloskey:
many economists say they follow positivist methodology  they don’t. Argued that small-m
methodology is more useful than big-M methodologies:
 - Big-M methodologies: developed by philosophers of science (little knowledge of
economics).
- Small-m methodologies: basic insights how economics is actually practiced/practical
guidelines.
 McCloskey’s small-m methodology:
- Knowledge has no “foundations”: changes according to how economists successfully
persuade each other.
- Pluralism: meaning of words/concepts often depends on context (may change over time).
- Economics = conversation  keep it civilized!
Implication: knowledge can be lost  can explain the dissatisfaction/frustration with economics
post crisis. Emphasized by Paul Krugman: old stories (in economics) have been forgotten, new
ones have emerged.
 Interviews with economists  Arjo Klamer: conducted interviews during rational expectations
revolutions in macroeconomics. David Colander and Arjo Klamer: conducted interviews with
graduate students about their economics education.
 clear interest in context of discovery! (clearly far removed from logical positivism)
 SSK, much of ESK & rhetoric approach  belong to postmodernism: broad cultural movement
since mid-20th century in arts/literature/architecture/philosophy. Reaction against modernism 
movement during late 19th/early 20th century, aim to restore order/purpose in modern,
industrialized world. Influenced by poststructuralism: movement in philosophy as reaction
against structuralism  some assumptions:
1. Single scientific method
2. Knowledge has foundations
3. Meaning can be ultimately determined with certainty
4. …
 postmodernism: reaction against idealizations/concepts that try to identify the essence of
phenomena but neglect disorder in real world.
- In Economics: models with multiple equilibria, chaos theory (gives up idea that markets
should evolve according to clear pattern), time-inconsistent preferences  individuals have
multiple selves.
- Conclusion  some postmodern concepts (take disorder in world into account) may actually
be more realistic than modern concepts (aim to identify order in real world).
 Pluralism: after Thomas Kuhn things became less clear  SSK/ESK/rhetoric approach don’t
provide much guidance for scientists (what to do/not to do). Important guiding principle to
organize scientific research.
- Epistemological pluralism: view that multiple kinds/forms of knowledge exist, cannot be
shown to be superior/inferior to the other. (physics/chemistry) Note: not the same as
relativism  only claims there are different types.
- Reductionism(opposite): assumption that different knowledge types can be reduced to one
specific form of knowledge. Example: all economic/social behavior can be explained by
rational choice theory.
- Methodological pluralism: methodological norm  view that if it cannot be shown that one
methodology is superior to another one, analysis should not be rejected only on basis of used
methodology. (Provides room for scientists to use their methodology that fits their research)
 advantages: risk diversification (not known which methodology will be successful),
triangulation (more credibility if different methods reach same results)
In Economics: neoclassical (mainstream) economics, heterodox economics  marginalized
(some have been replaced/fired).
Hyman Minsky: came up with the financial instability hypothesis  stability destabilizes.
Rediscovered during subprime mortgage crisis of 2008  start of financial crisis now called
Minsky moment. Crisis showed importance of making room for methodological pluralism.
Week 4
Chapter 7 – Value Judgments in Economics
 Methodological value judgments: norms & values  disciplinary matrix (Thomas Kuhn).
- Research domain  neoclassical (mainstream) economics: “the science which studies
human behavior as a relationship between ends and scarce means which have alternative
uses” (Lionel Robbins)
- Research methods  neoclassical (mainstream) economics:
1. Based on rational choice theory (assuming that people are fully rational, try to meet
ends by maximizing utility subject to the constraints they face).
2. Postulates for which: we don’t need experiments to establish their validity  only
have to be stated to be recognized as obvious (armchair economics).
3. Math, statistics, econometrics.
- Evaluation criteria  neoclassical (mainstream) economics:
1. Does the empirical evidence corroborate/falsify a conjecture? (Popper)
2. Does it solve a puzzle? (Kuhn)
 Value connotations of economic concepts and theories: can lead our economic thinking in a
certain direction.
- Traditional view: Hume’s law  positive (“is”) statements do not imply normative
(“ought”) statements. Also called fact value distinction. Embraced by many
economists/scientists  supports view that they do not have hidden ideological agenda but
are neutral/objective.
- Gunnar Myrdal (1898-1987): economic theories/concepts often have additional
meanings/associations which may give directions to our thoughts  often have value
connotations. Therefore: not possible to think about economics in completely neutral way.
 a social science is never disinterested (or unbiased). People may confuse implicit value
connotations with objective facts.
Example: wage = marginal product & productivity is good  people with high wage are very
productive, good for society & they deserve it.
 Ethical implications of Rational Choice Theory:
- Rational choice theory: belongs to hard core of neoclassical economics. People maximize
utility function based on preference. Assumed to be better off with higher utility  better
satisfied preferences. “Good” if people reach higher utility. Example of utilitarianism: ethical
theories that actions taken should maximize happiness/welfare/utility function  also
consequentionalism: moral theories that look at consequences of particular action to
determine whether they are good/bad.
- Other views of what is “good”: deontological ethics  “good” if people fulfill their moral
duties (Immanuel Kant); capability approach  “good” if people have more capabilities
(Sen & Nussbaum). Both neglected in neoclassical economics.
 Policy implications rational choice theory:
1. Search for Pareto improvements  policy change making at least one person
better off without making anybody worse off (leads to Pareto improvement). In
practice: policy changes usually make some people better and some people worse
off.
2. Neoclassical economists developed cost-benefit analysis: first analyze who would
be better off/how much they benefit and then who would be worse off/how much the
policy change would cost them. Compute whether the gains compensate the losses
 possibility to set up redistribution scheme so that nobody is worse off.
Search for potential Pareto-improvements:
 1. Policy change that leads to potential pareto-improvement, passes CBA and
should be implemented.
2. Policy makers decide whether those who gain should compensate for those who
lose (value judgement).
 CBAs are not value-neutral: market prices may not reflect people’s social
preferences (do not always reflect negative externalities), neglecting distributional
effects is not value-neutral.
- Rational choice theory has very specific view of what is “good”  neglects view that people
have moral duties (for example). Rational choice theory  rationale for CBA’s, not as value-
neutral as neoclassical economists think.
- Climate change example  cost of reducing: for the current generation & benefit of
reducing: for generations in distant future. Future benefits discounted at market interest rate
 to compare costs/benefits. Discounting benefits in the future at market interest  very low
present value (tyranny of discounting).
- Result: climate change CBA’s recommend moderate reduction GHG emissions. These CBA’s
are strongly value-laden! Discounting at market interest implies  social preferences: current
generation hardly cares about wellbeing of future ones (appropriate?). Climate change CBA’s
don’t take moral duty of current generation into account.
- In general: lot of neoclassical policy advice (thought to be objective/value-neutral)  may be
contaminated by ethical implications that originate from presuppositions/implications hidden
in rational choice theory, does not make advice useless (needs to be interpreted correctly).
 Assumptions about norms and values in economic models:
All economic analyses start from a paradigm  shares certain values based on concepts that may
have certain value connotations/start from ethical presuppositions (one way or another has
important ethical implications). Economists model behavior which is affected by norms/values 
in almost all economic models:
- Ethical values determine preferences (assumed to be non-malevolent).
- Social norms determine how markets function (assumed respect for property rights).
 Some economic analyses focus explicitly on effect of norms/values: differences in ethical
values may explain wage differentials, differences in social norms may explain different
economic outcomes.
 May cause vicious circle between economic research and society:
Economic research (value-laden)  scientific “knowledge” (people with high wage are
productive, good for society, deserve high wage)  may affect norms/values  modelled by
economic research.
 Better acknowledge that economics is value-laden but nonetheless useful when
interpreted correctly!