American Economic Review Vol. 101 No. 2 2011

Falsifiability

Wojciech Olszewski¹; Alvaro Sandroni²

¹ Department of Economics, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208. · ² Department of Managerial Economics and Decision Sciences, Kellogg School of Management, Northwestern University, 2001 Sheridan Road, Evanston, IL 60208, and Department of Economics, University of Pennsylvania, 3718 Locust Walk, Philadelphia, PA 19104.

Abstract

We examine Popper's falsifiability within an economic model in which a tester hires a potential expert to produce a theory. Payments are contingent on the performance of the theory vis-à-vis data. We show that if experts are strategic, falsifiability has no power to distinguish scientific theories from worthless theories. The failure of falsification in screening informed and uninformed experts motivates questions on the broader concepts of refutation and verification. We demonstrate an asymmetry between the two concepts. Like falsification, verification contracts have no power to distinguish between informed and uninformed experts, but some refutation contracts are capable of screening experts.

DOI

10.1257/aer.101.2.788

Volume

101

Issue

2

Pages

788-818

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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