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Economic Models as Analogies

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  • Gilboa, Itzhak
  • Postlewaite, Andrew

Abstract

People often wonder why economists analyze models whose as- sumptions are known to be false, while economists feel that they learn a great deal from such exercises. We suggest that part of the knowledge generated by academic economists is case-based rather than rule-based. That is, instead of oering general rules or theories that should be contrasted with data, economists often analyze models that are \theoretical cases", which help understand economic problems by drawing analogies between the model and the problem. According to this view, economic models, empirical data, experimental results and other sources of knowledge are all on equal footing, that is, they all provide cases to which a given problem can be compared. We of- fer complexity arguments that explain why case-based reasoning may sometimes be the method of choice and why economists prefer simple cases.

Suggested Citation

  • Gilboa, Itzhak & Postlewaite, Andrew, 2013. "Economic Models as Analogies," Foerder Institute for Economic Research Working Papers 275778, Tel-Aviv University > Foerder Institute for Economic Research.
    • Handle: RePEc:ags:isfiwp:275778
    DOI: 10.22004/ag.econ.275778
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    More about this item

    Keywords

    Financial Economics;

    JEL classification:

    • B40 - Schools of Economic Thought and Methodology - - Economic Methodology - - - General
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology

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