Does economic theory need more evidence? A balancing of arguments

This article seeks to provide a characterization of theory prevalent in economics and found in many areas of social and natural science, particularly those that make increasing use of rational choice perspectives. Four kinds of theoretical project are identified in which empirical evidence plays a relatively small role in theory acceptance. The paper associates the minor role of evidence in theory formation and acceptance to a need to answer counterfactual questions and argues that is not necessarily incompatible with accounts of science that emphasise truth in the development of theory. However, this view of economics does highlight factors that play a central role in theory acceptance which have not featured very strongly, if at all, in the philosophy of science literature. The article goes on to discuss four areas of economics that illustrate the consequences of using theory acceptance procedures which give relatively little weight to empirical testing. Benefits and costs of counterfactual science as it has developed in economics are discussed. It is concluded that there are good reasons why scientists may not use evidence in theory acceptance, even if an unintended consequence has been to strip economics of valuable empirical sensibilities still evident in natural sciences.