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Causal theories, models and evidence in economics – some reflections from biology

date Date: January 1, 2016
date Author(s): Michael Joffe
date Affiliation: Imperial College
Abstract

Models have been extensively analyzed in economic methodology, notably their degree of ability to provide explanations. This paper takes a complementary, comparative approach, focusing on biology which – like economics – studies a highly complex reality. The aim is to propose a concept of theory and theory development, distinct from models, and to discuss the theory-model relationship. Such a theory seeks to understand phenomena by combining core concepts relating to the causal mechanism with a broad range of evidence – including mechanistic and “difference-making” evidence. It is broad and descriptive, and evolves over time, becoming modified to accommodate new findings. Examples include the germ theory of disease, the theory of evolution by natural selection, and several physiological theories. Similar theories occur outside biology too, e.g. tectonic plate theory. They are phrased in the language of causation, not mathematics. Mathematical models can then be developed relating to specific components of the theory, e.g. epidemiological models of infectious diseases, and models of physiological processes such as the biophysics of the circulation. Thus, models are nested within the broader causal theory; crucially, scientists are therefore aware of what the model omits. Parallels do exist in economics, as in recent work on the nature and origin of money, but are atypical. Before the 2007-08 crisis, macroeconomic models notoriously assumed frictionless financial systems, obscuring problems originating in the financial sector. Relatedly, the term “theory” is typically equated with models in economics. It tends to be based on axioms and assumptions, not on evidence as in e.g. biology – despite economists’ sophisticated and effective methods for causal inference and for testing predictions against evidence. These issues will be critically discussed in the light of the literature, including the influence of Friedman, notably his biological examples: the distribution of leaves on a tree, and the billiard player.


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