高考 ECON QUESTIONS

Theory
An if-then statement aiming at
(1)explaining phenomenon / fact / behavior, and
(2)making predictions

It contains the following components:
(1)Definition [unrealistic]
(2)Assumptions [unrealistic]
(3)If-condition (“If part” to put it in a simple way) [realistic]
(4)Prediction (“then part”) [realistic]

Endogenous variable: variable whose behavior is to be explained by theories
Exogenous variable: variable used by theories to explain the behavior of endogenous variable, while itself is not explained by the theories

Ad-hoc theory
A theory which is too specific to be able to explain only one single/ a limited number of phenomena with limited generalization power.

Reasons:
(1)Fact cannot explain fact. One can always add in a lot of if-conditions to best describe the complicated real world conditions, but this tends to explain limited phenomena and is not general enough to be useful in prediction
(2) Thus a more useful theory always leads to simplification of the real world which is unrealistic in nature.

Tautology
A statement which is always true. It is not refutable by facts. It lets us understand nothing more about the real world and is not useful in explaining behavior.

There are two types of tautologies:
(1)Restatement of definitions
(2)Listings of all possible outcomes as the “then-part” of a statement

Useful Theory
A useful theory is between ad-hoc theory and tautology.

Note: A theory can never be proven. A theory is useful only if it is potential refutable but not yet refuted by facts. But no one knows if it will be refuted one day by facts in the future (e.g. Newton’s Law: you can't guarantee some day a ball will rise up when released), or if it really explains the underlying reasons behind due to simplification of theory (e.g. it was thought sun always moved from ease to west, which is later confirmed wrong because it's the Earth which rotates.)