Tuesday, October 22, 2013

Theory and just-the-facts

Paul Krugman makes a good point in the field of economics that applies more broadly to the need to give attention to theory in interpreting empirical research. In A Dark Age of Empirical Work 10/22/2013,

... unless you at least try to think in terms of a broader model, all the empirical work in the world can’t answer some questions — and you can all too easily draw the wrong conclusions. Take Chetty's very example, the effects of unemployment insurance. He reports evidence that extended benefits have only a small effect on the time people spend searching for work. But suppose the result went the other way; would that say that UI was hurting employment? Not necessarily, and I’d say not at all: right now the economy is constrained not by a lack of willing workers but by a lack of demand, so that making workers more choosy about accepting jobs would, to a first approximation, have no effect at all on overall employment.

And interpreting the micro results on job search as having a one-to-one impact on the macro outcome is a classic case of implicit theorizing, which is what people who imagine themselves to just be looking at the facts often do.

So yes, there is a dark side to all this data-driven work; data are good, but not if they’re used to dodge the core issues.

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