good theory?

Question

what is a good theory, what makes a theory to be good, who evaluates theories

Answer 1

Although in a limited practical sense Mikey C is correct, the answer is interestingly enough both more complicated and simpler in my opinion.

The notion of a theory "feels" like something between a hypothesis and a law. In general, economics does not have laws like the physical sciences. As an example, one of the most prominent "laws" is that of market balance from supply and demand. However, one of the hallmarks of the last 30 years of economic theory is Akerlof's lemons problem which shows that even market balance cannot be achieved in the presence of other factors (in his case, asymmetric information leading to market failure).

So the best we can hope for is a theory which really works just fine as long as we recognize its limitations.

In order to answer what a *good* theory is, we have to understand what a theory is and then delineate some theories as "good" and others as "not good."

One characterization from Karl Popper on the use of the word theory in the sciences: A theory must...

a) ...be able to be confirmed by risky predictions. This is not the same as being proven which under most circumstances is impossible. Additionally, "by risky predictions" means that it cannot be trivial. The statement "what goes up must come down" is not a theory because even though it does make a confirmable prediction, the prediction is elementary so it doesn't count.

b) ...be a prohibition. This means that it must not only make predictions about what CAN happen, but it must also state what cannot happen.

c) ...be refutable. This is one of the most important but overlooked characteristics of a theory. Many people believe that a theory which is irrefutable is the best but in fact if the theory is irrefutable it provides no scientific value. An example of this in current phyical sciences is string theory. Whether string theory is refutable or not is unknown; however, given the current state of technology it is irrefutable but it is also unverifiable. As such, many people (including myself) consider string theory to be an very sophisticated hypothesis.

d) ...be tested using a focused test of the theory. This means that if you do a test of Hypothesis B and find evidence which corroborates Hypothesis A which is not being tested, the evidence is not considered to be a test of A. The fundamental reason for this is that the scientific method requires "control" which is the isolation of the cause-effect relationship. If you conclude the validity of a hypothesis from a test which is not designed to test that hypothesis, it cannot be known whether the proper cause-effect relationship is being tested.

Basically, it all comes down to one word: refutability. I like the wikipedia author's comment (on the term "theory") with regard to this. (S)he refers to Wolfgang Pauli's quote: "This isn't right. It isn't even wrong." This means the idea he was referring to wasn't formed well enough for it to be refutable.

I know this goes against what many people have been taught to think about "good" vs "bad" but the truth is that the "goodness" of a theory does NOT depend on whether it is correct or not. A good theory is one which uses a set of tools (axioms, arguments, etc) to arrive at a conclusion which does not violate the above principles. If a statement is made which is logical and arrives at a conclusion which is refutable then the theory is good regardless of whether it is correct. A good example of this from economics is the law of gravity by Newton. There have been found to be variations in gravity which are not described by Newton's law. However, the construction of the arguments, its assumptions, etc were incredible. Good theory? yes. Correct? no.

Many examples exist of this in economics, as well but economics (being a younger branch of knowledge than physics) tends to be more precise about the conditions which surround its theories. Thus, Modigliani-Miller, for example, is a good theory but completely "wrong" because the conditions necessary to produce the effect of the irrelevance of the capital structure do not exist in a real-world environment with imperfect capital markets. Similarly, Black-Scholes is a good theory but incorrect in its description of the "real-world" because it relies on a set of assumptions which are in virtually all cases are invalid (such as normality of the returns distribution and perfect information in the markets).

I'm a financial economist and a physicist by training so I borrow examples from these two fields but the idea of a theory really bridges all fields.

I know this is long but as I always say, precise correct answers are rarely short.

Answer 2

Actually this has a very simple answer.

There is a series of economic journals who are deemed as the world's official elite economic theorists. Usually, if an idea has been introduced and recognized, these journals will evaluate it. From here, newspapers and real world analysts will look at it and if it is deemed correct AND applicable, then it will be utilized.

Below is a list of those journals:
Rand Journal of Economics
Econometrica
Journal of Economic Theory
American Economic Review
Economic Theory
Review of Economic Studies
Journal of Economics and Management Strategy
Revue Economique
Journal of Economic Literature

There are more out there, but these are some of the world's greatest economic journals (some of which are academically backed meaning they might support ideas which are more theoretical than realistic).

In addition, there are many societies which are groups of professional economic specialists who evaluate and analyze all presented theories, new and old. Some are associated with the journals earlier stated, but some print their own work. Below is a list of well-known economic societies:
AEA
Econometrics Society
The Society for Economic Dynamics and Control
The Society for the Promotion of Economic Theory
Society for the Advancement of Economic Theory

Best of luck with your research and your idea!

Answer 3

Theory is something that is stated but not done practically and if that statement is implemented and it works out fine then it is good and whoever attempts or tries to check the theory is known as the evaluvator.

Answer 4

the winner writes the history books
the one with the most success stories evaluates theories
colleges and universities are only debating society its wall street that really runs the world

Answer 5

hard aspect. search onto google or bing. that might help!