Characteristics of Good Economic Theories Occam’s Razor ________________________________________________________________________________________________________________________________________________ A critic once remarked that “economics is common sense made hard.” But theory necessitates abstraction (generalization), which is intended to simplify analysis. We try to focus on important relationships and to ignore insignificant tangents. In fact, most scientists prefer simple but accurate theories to complex ones. Occam's Razor is the idea that the simplest workable theories are also the most useful and the best. For example, Earth once was thought a fixed point about which all the universe spun. Incredibly complex equations were developed to trace movements of the then-observable planets and stars. Modern astronomy applies Occam's razor to explain cosmic acts in a simpler fashion; the entire universe is in motion, and Earth orbits the Sun, not vice versa. A good model may be so simple that it is unrealistic except for its intended use. Would finding a particular intersection be aided by an exact full-scale replica of a city? Hardly! Any out-of-towner would find a simple paper street map far more useful. Simple models are usually less costly than complex ones. For example, intricate plastic models can show how an airplane looks, but tossing a cheap plastic glider into the air will give you a better understanding of aerodynamics. Watches come in solar, quartz-crystal, and other varieties. Which is best? If you care only about knowing the time, the best one most simply, accurately, reliably (and cheaply) reflects the passage of time. However, if communicating a sense of esteem and status is important to you, a Rolex might be just the right fit. To summarize, a good theory or model attempts as simply as possible to predict how the real world works. Common sense evolves as exceptions to old theories compel acceptance of better theories if they seem reliable after extensively testing.
	________________________________________________________________________________________________________________________________________________ Author: Ralph Byrns
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