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Economic Models as Analogies, Third Version

  • Itzhak Gilboa

    ()

    (HEC, Paris, and Tel-Aviv University)

  • Andrew Postlewaite

    ()

    (Department of Economics, University of Pennsylvania)

  • Larry Samuelson

    ()

    (Department of Economics, Yale University)

  • David Schmeidler

    ()

    (The InterDisciplinary Center in Herzliya, and TAU)

People often wonder why economists analyze models whose assumptions 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 offering 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 offer complexity arguments that explain why case-based reasoning may sometimes be the method of choice and why economists prefer simple cases.

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File URL: http://economics.sas.upenn.edu/system/files/13-007.pdf
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Paper provided by Penn Institute for Economic Research, Department of Economics, University of Pennsylvania in its series PIER Working Paper Archive with number 13-007.

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Length: 41 pages
Date of creation: 31 Jul 2012
Date of revision: 27 Jan 2013
Handle: RePEc:pen:papers:13-007
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  1. Kareen Rozen, 2008. "Foundations of Intrinsic Habit Formation," Cowles Foundation Discussion Papers 1642, Cowles Foundation for Research in Economics, Yale University.
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  3. Aragones, E. & Gilboa, I. & Postlewaite, A. & Schmeidler, D., 2001. "Rhetoric and Analogies," Papers 2001-15, Tel Aviv.
  4. Till Grune-Yanoff & Paul Schweinzer, 2008. "The roles of stories in applying game theory," Journal of Economic Methodology, Taylor & Francis Journals, vol. 15(2), pages 131-146.
  5. Itzhak Gilboa & Offer Lieberman & David Schmeidler, 2006. "Empirical Similarity," The Review of Economics and Statistics, MIT Press, vol. 88(3), pages 433-444, August.
  6. Tomasz Strzalecki, 2011. "Axiomatic Foundations of Multiplier Preferences," Econometrica, Econometric Society, vol. 79(1), pages 47-73, 01.
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  8. Fabio Maccheroni & Massimo Marinacci & Aldo Rustichini, 2004. "Ambiguity Aversion, Robustness, and the Variational Representation of Preferences," Carlo Alberto Notebooks 12, Collegio Carlo Alberto, revised 2006.
  9. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
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  11. Uskali Maki, 2005. "Models are experiments, experiments are models," Journal of Economic Methodology, Taylor & Francis Journals, vol. 12(2), pages 303-315.
  12. Thomas J. Sargent & LarsPeter Hansen, 2001. "Robust Control and Model Uncertainty," American Economic Review, American Economic Association, vol. 91(2), pages 60-66, May.
  13. Guth, Werner & Schmittberger, Rolf & Schwarze, Bernd, 1982. "An experimental analysis of ultimatum bargaining," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 367-388, December.
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