The Methodological Status of 'Common Sense' in Economic Theory

The present work was intended originally as a chapter for my January 2006 Ph.D dissertation, but now is essentially a 'working paper.' As is well known, economists make a number of abstract and unrealistic assumptions, such as for example characterising the economic agent as a rational maximiser. The present paper is concerned with assessing the methodological status of every-day common-sense observations in relation to such abstract and unrealistic assumptions. Following Popper and Hume, I propose a theoretical framework in which to understand 'common sense.' I then argue that (i) common-sense acts as a 'guide' assessing the value of theoretical work, (ii) that theoretical contributions that are based on premises or arrive at conclusions that diverge to a greater degree should require a higher level of justification, and (iii) that any common-sense observation about the real world should be admissable as a starting point for theoretical investigation and elaboration and any successful theory should be accountable to common-sense observations.