"Defence of Absurd Theories in Economics"
2003/18: Nordberg, M. & Røgeberg, O.J. The Ragnar Frisch Centre for Economic Research & HERO
(PDF 353 kb)
Theories that involve plainly false and even bizarre assumptions are argued to have an important role in economics given the cognitive limits of economists: The theories may make absurd assumptions concerning how people reason, how businesses are organised, determine prices, etc., but they enable us to remember, grasp, understand and manipulate the bundled facts and use these as building blocks in higher-level theories of mechanisms. The absurd theories are subcomponents used in a valid explanatory strategy as long as the mechanisms involve only the implications of the facts summarised. This provides a defence and explanation of many economic theories, but also imposes hard limits on such theorising.ISBN 82-7756-124-5