“Free Entry and Exit” from the Market: Simplifying or Substantive Assumption?

Economic theory, of necessity, presents an abstraction to the reader. Abstraction is required to achieve the perspective that allows for theory, that is to say, understanding and interpretation, to occur. If the abstraction is done well only inessential details are set aside -- details that would otherwise divert the theorist from grasping the essential or fundamental elements of the process under examination. For example a study of the mechanisms that cause a moving automobile to stop can reasonably abstract from the vehicle's color scheme. For this process to be valid it is critical that the theorist distinguish between "simplifying" and "substantive" assumptions. The former clears away the inessential. The latter elevates or prioritizes the inessential -- thereby contributing to a distorted understanding. The difficulty is that distinguishing between simplifying and substantial assumptions remains, and will always remain, something of an art. Fifty years ago the siren of "Positive Economics" proposed that this critical distinction could be reliably made by adhering to a set of clear and simple rules. While some economists and empirical psychologists maintain a nostalgic commitment to that eclipsed understanding of science, today most thinking practitioners are aware that such an epistemological stance, with its triumphant dismissal of the need for defensible assumptions, was naive -- even misguided. Out of this epistemological vacuum economists have retreated to several crude "fixes" to guide their selection of abstractions. Occasional assertions to the contrary, these methods are conventions. Innocent of any knowledge of these issues, many economists instinctively deploy the abstractions used by their graduate advisor, or rely on those that most frequently appear in what are held to be the profession's premier journals. Economics, perhaps more than ever, is now defined by what economists do. Ideally, the distinction betwee(This abstract was borrowed from another version of this item.)