Steps in the Scientific Method of Investigation

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Steps in the Scientific Method of Investigation
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STEP 1

• Identify the questions and define relevant
  variables

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STEP 2

• Specify simplifying assumptions

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STEP 3

• Formulate a hypothesis

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STEP 4

• Test the hypothesis with data

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If hypothesis is not rejected

• Use until a better hypothesis is validated
• Retest hypothesis with additional data to
  validate, if possible
• Validated hypothesis gt theory

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If hypothesis is rejected

• Modify approach to find a better hypothesis
• Repeat steps 1-4

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Scientific method v. Anecdotal evidence

• Anecdotal - Based on casual observations or
  indications rather than rigorous or scientific
  analysis, akin to storytelling.

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Scientific method v. belief

• Scientific method used to validate beliefs
• Validated beliefs become theories
• Not all beliefs are testable
• Beliefs that are not testable cannot become
  scientific theories

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Positive v. Normative Statements

• Positive statements describe what is, are
  testable
• Job growth last month was 100,000 new jobs
• Normative statements describe what ought to be,
  are opinion, not testable
• Workers laid off from a job ought to be able to
  make as much in a new job

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Pitfalls of Economic Analysis

• Three possible sources of mistakes in reasoning
  leading to faulty conclusions
• Fallacy that Association is Causation
• Fallacy of Composition
• Mistake of Ignoring Secondary Effects

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Pitfalls of Economic Analysis Fallacy that
Association is Causation

• Event A caused event B simply because the two are
  associated in time
• The fact that one event precedes another or that
  the two events occur simultaneously does not
  necessarily mean that one event caused the other

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Pitfalls of Economic Analysis Fallacy that
Association is Causation

• Example as the number of new medicines
  increases, the number of prescriptions filled
  increases, therefore the development of new
  medicines is making more people ill

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Pitfalls of Economic Analysis Fallacy of
Composition

• Erroneous belief that what is true for the
  individual or the part, is also true for the
  group, or the whole
• Example If one farmer has a great crop, her
  income will increases, so if all farmers have
  good crops, all farmers will see an increase in
  income

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Pitfalls of Economic Analysis Ignoring Secondary
Effects

• Unintended consequences of policies or choices
• Primary Effects
• Effects that are felt relatively quickly
• Easily observed
• Secondary Effects
• Tend to develop more slowly
• Frequently not obvious
• Example low cost flood insurance encourages
  homeowners and businesses to rebuild in flood
  prone areas, increasing the cost of the program

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Pitfalls of Economic Analysis Ignoring Secondary
Effects

• Example low cost flood insurance encourages
  homeowners and businesses to rebuild in flood
  prone areas, increasing the cost of the program

Grundy Flood Protection Project.