Lesson Objective: EXPLAIN THAT ECONOMICS IS A SOCIAL SCIENCE. OUTLINE THE SOCIAL SCIENTIFIC METHOD. PRACTICE PPC SKILLS
THE SOCIAL SCIENTIFIC METHOD
Step 1: Make observations of the world around us, and select an economic question we want to answer.
We observe that people living in the city of Olemoo buy different amounts of oranges per week at different times in the year.
Example: Why are more oranges bought in some weeks and fewer in others?
Step 2: Identify variables we think are important to answer the question.
A variable is any measure that can take on different values, such as temperature, or weight, or distance. In our example, the variables we choose to study are the quantity of oranges that residents of Olemoo buy each week, and the price of oranges.
STEP 3: MAKE A HYPOTHESIS ABOUT HOW THE VARIABLES ARE RELATED TO EACH OTHER.
A hypothesis is an educated guess, usually indicating a cause-and-effect relationship about an event. Hypotheses are often stated as: if . . ., then . . .
Our hypothesis is the following: if the price of oranges increases, then the quantity of oranges Olemooans want to buy each week will fall.
Notice that this hypothesis indicates a cause-and-effect relationship, where price is the ‘cause’ and the quantity of oranges is the ‘effect’.
STEP 4: MAKE ASSUMPTIONS
An assumption is a statement we suppose to be true for the purposes of building our hypothesis.
In our example, we are making two important assumptions.
(a) We assume that the price of oranges is the only variable that inﬂuences the quantity of oranges Olemooans want to buy, while all other variables that could have inﬂuenced their buying choices do not play a role.
(b) We assume that the residents of Olemoo spend their money on oranges (and other things they want) so that they will get the greatest possible satisfaction from their purchases.
STEP 5: TEST THE HYPOTHESIS TO SEE IF ITS PREDICTIONS FIT WITH WHAT ACTUALLY HAPPENS IN THE REAL WORLD.
To do this, we compare the predictions of the hypothesis with real-world events, based on real-world observations.
Here, the methods of economics differ from those of the natural sciences.
Whereas in the natural sciences it is often (though not always possible to perform experiments to test hypotheses, in economics the possibilities for experiments are very limited).
Economists, therefore, rely on a branch of statistics called econometrics to test hypotheses.
This involves collecting data on the variables in the hypothesis, and examining whether the data fit the relationships stated in the hypothesis.
In our example, we must collect data on the quantity of oranges bought by Olemoo’s residents during different weeks throughout the year, and compare these quantities with different orange prices at different times in the year. (Econometrics is usually studied at university level, and is not part of IB requirements.)
THINKING POINTS (TOK)
Is it possible to ever arrive at the truth of a statement about the real world based on empirical testing?
Even assuming that testing methods could be perfected and data vastly improved, can there ever be complete certainty about our knowledge of the social (and natural) worlds?
Write your thoughts down in a notebook
STEP 6: COMPARE THE PREDICTIONS OF THE HYPOTHESIS WITH REAL-WORLD OUTCOMES.
If the data do not ﬁt the predictions of the hypothesis, the hypothesis is rejected, and the search for a new hypothesis could begin.
In our example, this would happen if we discovered that as the price of oranges increases, the quantity of oranges Olemooans want to buy each week also increases.
Clearly, this would go against our hypothesis, and we would have to reject the hypothesis as invalid.
TEST YOUR UNDERSTANDING
1 Explain the social scientiﬁc method. What steps does it involve?
2 Why is it important to compare the predictions of a hypothesis with real-world outcomes?
3 How do models help economists in their work as social scientists?
Write your answers in a notebook or start a docx file