Econometrics Versus Reality

WEA Pedagogy Blog

This is the second in a sequence of lectures about regression models and methodology (for first lecture, on underlying philosophy of science, see: Flawed Foundations of Social Sciences). These regression models are central in econometrics. Current methodology underlying these models makes them completely useless for learning about the real world. To learn how and why, we first discuss the differences between nominalist and realist methodology for science.

Underlying Philosophy of Science

Many important structures of the real world are hidden from view. However, as briefly sketched in previous lecture onIbnul Haytham: FirstScientist, current views say that science is only based on observables. Causation is central to statistics and econometrics, but it is not observable. As a result, there is no notation available to describe the relationship of causation between two variables. We will use X => Y as a notation for X causes Y. Roughly speaking, this means…

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