The explanation paradox

Abstract

This paper examines mathematical models in economics and observes that three mutually inconsistent hypotheses concerning models and explanation are widely held:(1) economic models are false; (2) economic models are nevertheless explanatory; and (3) only true accounts explain. Commentators have typically resolved the paradox by rejecting either one of these hypotheses. I will argue that none of the proposed resolutions work and conclude that therefore the paradox is genuine and likely to stay.

A new definition of and role for preferences in positive economics

“…Now, how have (simple and abstract) economic models and theories tried to capture the major causes of (complex and concrete) actions by real-life people in their attempts to causally explain those actions (see also Reiss, 2012)? An important strand of economic thought models agents as self-interest maximizers.…”

“…Before going into my criticism of Hausman's definition of preferences, let me simply note here that this will be based on the idea -clearly shared by Hausman as wellthat causal explanation is one of the (many) purposes that economic models can and should serve (see also Mäki, 2009;Reiss, 2012;Sugden, 2000). After all, my argument is that, when models along Hausman's lines take preferences as total comparative evaluations, they will often get the causal story wrong and thus fail to causally explain individual actions.…”

Between Isolations and Constructions: Economic Models as Believable Worlds

“…But still more research on MECH models is needed in order to check the validity of this approach in accounting for the ways economists model the real world. In this context it is worth checking how the above developed ideas can help us in solving the Reiss's (2012) paradox. This is done in the following section and serves as an assessment of the validity of my approach to economic modelling.…”

“…It is the mechanism that contributes to the transformation of distance into land use patterns through transportation costs and land values (Mäki 2011, p. 60 (Alexandrova and Northcott 2013, p. 263). Therefore, Reiss (2012) develops his final and fundamental criticism of Mäki's approach first by claiming that "the models of economics […] 17 To be honest I share with U. Mäki (2013, p. 274) difficulties in fully understanding the Reiss's distinction between Galilean and non-Galilean assumptions, so in here presented clarifications I just offer some insights taken rather straightforwardly from Reiss (2012).…”

“…Subsequently, the idea of believable world is compared with the one of credible world by Sugden (2000;. The last section of the paper uses my approach to resolve the explanatory paradox by Reiss (2012). Conclusions follow.…”