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Rationality in Econometrics

  • Bernt P. Stigum

    (University of Oslo)

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    The idea of rationality enters an econometrician's work in many ways; e.g., in his presuppositions about sample populations, in his model selections and data analyses, and in his choice of projects. I shall consider some of these ways and their ramifications for the econometrician's own life and for the development of econometrics. I begin with a discussion of rationality that I have found in the writings of Aristotle and other leading philosophers. My aim here is to establish the characteristics that we in good faith can expect rational members of a sample population to possess. The characteristics with which I end up have no definite meaning. Instead they are like undefined terms in mathematics that an econometrician can interpret in ways that suit the purposes of his research and seem appropriate for the population he is studying. When interpreted, the pertinent characteristics of the rational members of a given population become hypotheses whose empirical relevance must be tested. In rationally designed econometric studies the interpretation of 'rationality' that seems appropriate for a given study is usually an interpretation that the pertinent econometrician extracts from various economic theories. I look at some of these interpretations and discuss their empirical relevance. The interpretations of particular interest concern consumer choice under certainty, choice under risky and uncertain conditions, and choice in game-theoretic situations. These interpretations appear in various representations in the ways econometricians model rationality. I single out for discussion microeconometric models of consumer choice and macroeconometric rational expectations models. In the last section of the paper I consider two lacunas in Kuhn's and Lakatos' theories, and see how econometricians go about solving puzzles and extending positive heuristics. I begin by discussing the considerations that guide an econometrician in his choice of research projects. Then, I argue about the determinants of rational choice in model selection. Finally, I consider the politics of writing research reports. The contents of these sections concern aspects of an econometrician's rational choice that are relevant for the orderly development of econometrics.

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    Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0747.

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    Date of creation: 01 Aug 2000
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    Handle: RePEc:ecm:wc2000:0747
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    1. B. P. Stigum, 1968. "On a Property of Concave Functions," Review of Economic Studies, Oxford University Press, vol. 35(4), pages 413-416.
    2. Eichberger, J. & Kelsey, D., 1994. "Non-additive beliefs and game theory," Discussion Paper 1994-10, Tilburg University, Center for Economic Research.
    3. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    4. Asheim,G.B., 1999. "On the epistemic foundation for backward induction," Memorandum 30/1999, Oslo University, Department of Economics.
    5. Chateauneuf, Alain & Jaffray, Jean-Yves, 1989. "Some characterizations of lower probabilities and other monotone capacities through the use of Mobius inversion," Mathematical Social Sciences, Elsevier, vol. 17(3), pages 263-283, June.
    6. Cooper, Russel J & McLaren, Keith R, 1996. "A System of Demand Equations Satisfying Effectively Global Regularity Conditions," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 359-64, May.
    7. Deaton, Angus S & Muellbauer, John, 1980. "An Almost Ideal Demand System," American Economic Review, American Economic Association, vol. 70(3), pages 312-26, June.
    8. Sheffrin,Steven M., 1996. "Rational Expectations," Cambridge Books, Cambridge University Press, number 9780521479394, December.
    9. Neil R. Ericsson & John S. Irons, 1995. "The Lucas critique in practice: theory without measurement," International Finance Discussion Papers 506, Board of Governors of the Federal Reserve System (U.S.).
    10. Stigum, Bernt P, 1972. "Resource Allocation under Uncertainty," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 431-59, October.
    11. Krolzig, Hans-Martin & Hendry, David F., 2001. "Computer automation of general-to-specific model selection procedures," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 831-866, June.
    12. Anderson, Heather M & Vahid, Farshid, 1997. "On the Correspondence between Individual and Aggregate Food Consumption Functions: Evidence from the USA and the Netherlands," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(5), pages 477-98, Sept.-Oct.
    13. Leamer, Edward E., 1983. "Model choice and specification analysis," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 5, pages 285-330 Elsevier.
    14. F. M. Fisher, 1968. "Embodied Technology and the Existence of Labour and Output Aggregates," Review of Economic Studies, Oxford University Press, vol. 35(4), pages 391-412.
    15. Frederick Mosteller & Philip Nogee, 1951. "An Experimental Measurement of Utility," Journal of Political Economy, University of Chicago Press, vol. 59, pages 371.
    16. Gilboa, Itzhak, 1987. "Expected utility with purely subjective non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 16(1), pages 65-88, February.
    17. Aasness, Jorgen & Biorn, Erik & Skjerpen, Terje, 1993. "Engel Functions, Panel Data, and Latent Variables," Econometrica, Econometric Society, vol. 61(6), pages 1395-1422, November.
    18. Lucas, Robert Jr., 1972. "Expectations and the neutrality of money," Journal of Economic Theory, Elsevier, vol. 4(2), pages 103-124, April.
    19. Bernt P. Stigum, 1969. "Competitive Equilibria under Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 83(4), pages 533-561.
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