Unbiased Analysis of Today's Healthcare Issues

A New Empiricism

Written By: Jason Shafrin - Jul• 03•07

What is more important: economic theory or testing these theories empirically? In her paper in the Economists’ Voice, Barbara Bergmann calls for “A New Empiricism” in the field of economics.

For instance, the assumption that individuals are rational decision makers may be hard to substantiate empirically.

The researchers [Daniel Kahneman and Amos Tversky] found that in many cases people making choices depart from the behavior that economists had posited as rational. However as Vernon Smith, who developed the field of experimental economics, recently pointed out, it may be that the economists’ notions of what is rational in various contexts needs a reality check.

Gary Becker claims that markets should eliminate racial discrimination. If a company decides not to hire individuals of one race, it will be put at a competitive disadvantage compared to non-racist firms. While markets may work to reduce discrimination somewhat, they definitely do not eliminate it.

Economists have studied the extent of racial discrimination in the labor market by sending out carefully matched black and white “testersâ€? to answer ads for job vacancies, so as to tally differences in treatment. In another study, testers who differed by race and sex but were coached to use similar bargaining tactics were sent out to dealerships to bargain for new cars. In these studies, highly significant differences in treatment by race and sex were found—-non-whites and women were disadvantaged compared to white males.

Dr. Bergmann’s article calls for a logical change in economists’ thinking to focus more on empirical truths of their theories rather than their theoretical elegance.

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