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Economic models that don't claim to predict real world behaviour are like thought experiments (with more maths). Their purpose is to help people understand that
by mjohn 10y ago
Economic models that don't claim to predict real world behaviour are like thought experiments (with more maths). Their purpose is to help people understand that small isolated part of the whole, because a model that includes all the complexities of the real world would be incomprehensible.
Nonetheless, many of these models are still falsifiable. For example, the textbook model of the benefits of trade due to comparative advantage only contains two countries and two goods. Although extremely simplistic, the theory does have falsifiable predictions and there is good empirical evidence supporting the broad theory. But this simple model will not be able to accurately predict how much a particular country will benefit from free trade.