Methodology of Positive Economics
As a discipline, economics has both a normative and a positive side. The former involves value judgments about how the world should be, while the latter emphasizes what actually occurs as a way to explain economic behavior and predict future events. Positive economics requires a scientific methodology to yield simple and precise explanations of economic phenomena. A future Nobel laureate in economics outlined the methodology of positive economics in a 1953 essay of the same name.
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History
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English economist John Neville Keynes (father of John Maynard Keynes, the economist for whom Keynesian economics is named) distinguished between positive economics, which strives to systematically explain what is, and normative economics, which concerns itself with what should be.
Identification
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The methodology of positive economics requires developing theories that yield meaningful explanations of economic phenomena based on empirical evidence. In his 1953 essay "The Methodology of Positive Economics" economist Milton Friedman wrote that positive economics should be free of normative judgments about how the world should be. Friedman would later win the Nobel prize in economics.
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Expert Insight
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In his essay, Friedman stated that a theory should be judged by its simplicity in its predictive ability. This means extracting elements that are sufficient to provide precise predictions of economic phenomena. A theory that overspecifies runs the risk of merely telling an interesting story, rather than providing a framework for explaining economic phenomena in general terms.
Features
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Methodology in positive economics relies on data and evidence gathered from observation of real-world economic activity. Friedman called these activities experiments that happen to occur. Because of the nature of the research, economists and other social scientists are at a methodological disadvantage, compared to their counterparts in the natural sciences because they cannot construct the controlled experiments used in disciplines such as chemistry and biology.
Considerations
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Although positive economics cannot use controlled experiments, Friedman did not see this as a major obstacle to a strong methodology for developing strong theories. He wrote in his essay that evidence from experience in the natural world is abundant and can be just as conclusive as evidence gathered from a laboratory experiment. He cautioned, however, that the evidence gathered by economists is complex and often indirect, making it difficult to interpret.
Prevention/Solution
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Because of the complex nature of economic evidence gathered from observation of events in the real world, positive economics requires in-depth analysis of the data collected. This is a reason economic research involves construction of mathematical equation models, as well as a large amount of statistical analysis.
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