hypothesis

Examples of hypothesis in the following topics:

• Hypotheses and Tests

  • A hypothesis is simply a prediction.
  • Test hypothesis - the fourth step of the scientific method involves testing the hypothesis to determine if it is true.
  • First, an economist will ask himself if the data agrees with the hypothesis.
  • If the answer is "yes," then the hypothesis was accurate.
  • If the answer is "no," then the economist must go back to the original hypothesis and adjust the study accordingly.

• Hypotheses, Theories, Laws and Models

  • A hypothesis is a proposition or set of propositions that is an attempt to explain an event or class of phenomena.
  • Hypothesis testing requires the analyst to try to disprove the hypothesis.
  • It is possible to reject a true hypothesis as false; this is a Type I error.
  • It is also possible that a hypothesis is retained as probably true even when it is false; this is a Type II error.
  • Webster's Dictionary defines a theory as a "as a coherent group of general propositions used as principles for explaining a class of phenomena. " Usually a theory is considered as more reliable than a hypothesis.

• The Standard View of the Scientific Method

• The budget constraint: balancing income, consumption, and saving across time

  • As a result, four different models attempted to explain the affect of time on consumption and saving decisions: Fisher's Model of Intertemporal Consumption, Modigliani's Life Cycle Income Hypothesis, Friedman's Permanent Income Hypothesis, and Hyperbolic Discounting.
  • The Life Cycle Hypothesis (LCH) model defines individual behavior as an attempt to smooth out consumption patterns over one's lifetime somewhat independent of current levels of income.
  • Friedman's Permanent Income Hypothesis is one of the models that seeks to explain this apparent contradiction.
  • According to this hypothesis, permanent consumption is proportional to permanent income.

• Milton Friedman

  • The structure of this positive science, like all positive sciences, consists of two parts; first, is a language and second, is a "body of substantive hypothesis designed to abstract essential features of complex reality" (Ibid. p 7).
  • "hypothesis can be tested only by the conformity of its implications or predictions with observable phenomena; but it does render the task of testing hypotheses more difficult and gives greater scope for confusion about the methodological principles involved.

• Brief Survey of Epistemology

  • If a hypothesis cannot be rejected by empirical evidence, it may be retained as "probably true. " All knowledge then is probabilistic; it has not yet been falsified.
  • Type II errors occur when a false hypothesis is accepted as "true. " When a "true" hypothesis is rejected as false a Type I error has occurred.
  • Rather than falsifying a hypothesis or the whole paradigm, he felt that the process was based on "scientific research programs. " A school of economic thought may represent a paradigm (in a Kuhnian sense) or a scientific research program (in a Lakatian sense).

• Which Methodology is "Correct?"

  • Within modern economics, knowledge is believed to be advanced by inductive or empirical investigations that can verify (or fail to falsify) "positive" concepts, hypothesis, theories or models developed by deductive or rationalist logic.

• The Balance of Trade

  • The twin deficits hypothesis is a concept from macroeconomics that contends that there is a strong link between a national economy's current account balance and its government budget balance.
  • The twin deficits hypothesis implies that as the budget deficit grows, net capital outflow from a country falls.

• Foundations of "Science"

  • The concept of causation depends on a theory (or hypothesis) about the relationship between the variables.
  • Statistical methods allow a test of the hypothesis or theory.
  • The hypothesis cannot be proven it can only be disproven and the hypothesis rejected.

• Deirdre McCloskey

  • Most economists, as well as individuals in most other disciplines, claim to follow the "scientific method" of falsification (i.e. hypothesis testing), usually in the format expressed by some integration of Popper/Lakatos/Kuhn.
  • It includes the belief that "only falsifiable hypotheses are meaningful; the evidence is consistent with the hypothesis; of tastes one ought not, of course, to quarrel" (McCloskey, 1985, p 6).