Back
Models and Theories
What is a theory and how is it tested?
 (ECONOMICS, Lipsey, Purvis, Sparks, Steiner, 1982, p.25)





A theory consists of

(1) a set of definitions that clearly define the variables to be used

(2) a set of assumptions that outline the conditions under which the theory is to apply

(3) one or more hypotheses about the relationships of variables, and

(4) predictions that are deduced from the assumptions of the theory and can be tested against actual empirical observations
 
 

Next