Assumptions in economic modelling: How behavioural economics can enlighten

Beryl Y. Chang

Chapter 4 in Handbook of Research Methods in Behavioural Economics, 2023, pp 60-78 from Edward Elgar Publishing

Abstract: Assumptions are essential components in economic modelling. They are subjects in challenging the foundations of conventional economic theories. In recent decades, assumptions become the cornerstone of behavioural economics. This article focuses on discussions of i) the research methods that are explored and debated in the past century and ii) the applications in economic modelling surrounding issues of assumptions. In the former, I examine the schools of scientific realism, constructive empiricism, anti-realism and the causal holism method and its relation to behavioural economics. On the application, I search for behavioural and analytic factors in assumptions of economic modelling in 1) utility seeking; 2) preference/choice making; 3) institutional structures as environmental yet endogenous underpinnings in decision-making and market/worker behaviour; 4) distinctions of risk and fundamental uncertainty, or lack thereof, in financial modelling with the time factor; and 5) social, cultural, cognitive, emotive and political dimensions that influence economic outcomes.

Keywords: Economics and Finance; Research Methods (search for similar items in EconPapers)
Date: 2023
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