Detour through Abstraction

Applied economic theory offers some analogies with engineering sciences. The starting point is a concrete problem, either already identified or gleaned from observing reality or listening to decision-makers, public or private. Then follows a detour through abstraction. The essence of the problem is extracted in order to focus on its key aspects. In this simplification process lies much of the difficulty of the exercise; for tractability, the researcher cannot take everything into consideration. (S)he must select what is important and sort out what is anecdotal (i.e., its omission has little chance of changing the analysis). The experience of the researcher and discussions with practitioners are very useful at this stage, although ultimately a study of the robustness to underlying assumptions is highly desirable. Then, the model can be tested: econometrically if past data are available, and in the lab or in the field as well. One cannot underestimate the interaction between theory and empirics: empirical work needs theory, both to guide it and to make it useful for policy. Theory needs empirical work to strengthen the confidence in policy recommendations and also to suggest key omitted ingredients.

Jean Tirole Biographical