THE ROLE OF MEASUREMENT AND TESTING IN ECONOMICS
Economic theory and econometric analysis are two of the essential ingredients of economics. However, the fact that developments in each of these areas have occurred at different times and rates has sometimes been interpreted mistakenly as yielding information about their relative importance, or at least about the economics profession’s perception of their relative importance. Hence it is not surprising that the relative merits, and respective roles, of economic theory and econometrics have long been issues that have exercised the minds of economists. Recent illustrative examples of economists commenting on economic theory and empirical evidence being out of joint are provided by the following:
Although these conclusions ran counter to much of the conventional wisdom in the field of industrial organization and left a disconcerting number of mistakes and misperceptions to explain, the logic leading to them seemed compelling. And because no mere fact was ever a match in economics for a consistent theory, these ideas began to represent the basis of a new consensus.