<p>What you call framework would be probably more appropriately called paradigm in philosophy of science, following the terminology set up by  Kuhn in his seminal work.</p>
<p>There are paradigms or frameworks in economics. In economics people often call them 'schools of thought' , and laymen usually associate these schools of thought with some political set of beliefs or ideologies, but actually if you look into scientific literature they are paradigms that are independent of political or ideological values.</p>
<p>Some non-exclusive list of examples includes (taken from Brue &amp; Grant History of Economic Thought 8th ed):</p>
<ul>
<li>Keynesian economics</li>
<li>Neoclassical economics</li>
<li>New-classicism</li>
<li>New Keynesian economics</li>
<li>Post-Keynesian economics</li>
</ul>
<p>These can be considered analogies to frameworks such quantum mechanics, since they are not just a single theory but 'frameworks' or paradigm that leads to creation of theories and models.</p>
<p>For example the (old) Keynesian framework, that is nowadays no longer followed because it got replaced by the synthesis of Neoclassical and New Keynesian framework, emphasized modelling from top to bottom, and adaptive expectations. This sometimes leads to different models and theories than frameworks that emphasize bottom up modelling (i.e. starting from individual or household).</p>
<p>For example, the Ramsay's model you mention would be considered to be following neoclassical paradigm, because it starts with the behavior of representative household, and builds the economy from bottom up, besides other reasons.</p>

CC BY-SA 4.0
2023-08-11T17:09:22.243Z
are they limiting case of each other and where they conceptually different from each other ?(Keynesian economics
Neoclassical economics
New-classicism
New Keynesian economics
Post-Keynesian economic)
quanity
CC BY-SA 4.0
2023-08-11T20:32:40.813Z
@quanity they differ on various points, you can see the source I cited for more full treatment. For example, Keynesian paradigm stressed adaptive expectations as the correct approach to modeling people’s guesses whereas neoclassical economics stressed rational expectations. Some schools (especially the heterodox ones) depart more radically. For example, Austrian school of economics is opposed to statistical analysis because they argue that economic analysis must be deductive not inductive for example, whereas many schools of thought accept both induction and deduction
1muflon1
CC BY-SA 4.0
2023-08-22T08:42:36.517Z
Could you explain me more about frameworks(may be how to come up with new one) and how to incorporate models into it
quanity
CC BY-SA 4.0
2023-08-22T09:47:54.113Z
@quanity you come up with it the same way as Einstein came up with paradigm of Relativity that replaced paradigm of Newtonian Mechanics. You have to find some systematically important theory (i.e. theory that can be used to derive further theories and testable hypothesis (e.g. RCT, adaptive expectations, rational expectations) that has higher explanatory power than pre-existing theory. For example, rational expectations replaced adaptive expectations in macro because they could explain more stuff than just adaptive expectations, and in near future perhaps they will get replaced by
1muflon1
CC BY-SA 4.0
2023-08-22T09:49:29.150Z
quasi rational expectations, which adds some behavioral component to rational expectations (e.g. like the work of Paul DeGrauwe) since that seems to explain some autocorrelation in macro series that was difficult for pure rational expectations to explain. However, no theory will every be perfect you are just zooming in on the true mechanism closer and closer, so there will for sure be something that quasi rational expectations won't explain. Once you find something like this you need to rigorously describe the mechanism so everyone can see the logic of it (i.e. best if you do it mathematically
1muflon1
CC BY-SA 4.0
2023-08-22T09:52:59.693Z
and after that people have to start using it and build more theories with it, but if the previous condition of it being able to explain everything old paradigm did and something more, people will eventually pick up over course of 10-20 years it can be new dominant paradigm
1muflon1
CC BY-SA 4.0
2023-08-22T10:02:38.207Z
regarding how you incorporate models into it, usually it starts by building analogues to current models with the new paradigm and see how results change. For example, when r.expect. were introduced giving raise to Neoclassical and later New Keynesian macro people just rewritten all the models in terms of rational expectations and look at how things changed and whether it better fits the data or not. This is not something one person can do since to become good in an area you need to specialize. But if you come up with some 'workhorse model' that is actually good other people will start using it
1muflon1
CC BY-SA 4.0
2023-08-22T10:24:55.793Z
What are the limitations of current frameworks maybe we can start from it
quanity
CC BY-SA 4.0
2023-08-22T10:58:26.627Z
@quanity as mentioned above one of the limitations in macro is that currently used rational expectations have problems with explaining high levels of persistence in macro series.
1muflon1
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2023-08-22T11:53:40.383Z
but we have works of Daniel Kahneman and Richard Thaler who uses behavior and irrational judgments of customers in decisions
quanity
CC BY-SA 4.0
2023-08-22T13:51:28.470Z
@quanity 1. That has nothing to do with rational expectations, they are actually compatible with that line of behavioral work 2. The problem is that behavioral research does not yet offer some consistent framework. If you look at the behavioral models they are all rational choice theory (don’t confuse it with rational expectations) + some behavioral twist. For example, classic behavioral model is that of hyperbolic discounting. The hyperbolic discounting model is basically rational agent model in all ways except a discount factor that violates some conditions for rationality
1muflon1
CC BY-SA 4.0
2023-08-22T13:53:39.057Z
To explain more than can be explained just by model with perfect rationality. But there isn’t any coherent framework for “bounded” rationality. Behavioral economics is so far just ad hoc modifications of rational choice theory. Btw this is another example where I guess someone could develop some new framework by trying to develop some rigorous model of bounded rational choice or something like that. There is some work on bounded rationality but nothing that would offer coherent framework that could encompass RCT and then some more
1muflon1
CC BY-SA 4.0
2023-08-27T14:40:32.233Z
Say trading is driven by fear and greed. Could you help how to incorporate emotions into formalisms ( mathematical formulation)
quanity
CC BY-SA 4.0
2023-08-27T15:04:15.697Z
@quanity help how? I can point you toward some textbooks where you can learn the math for economists. I don’t have time to work out full paper for you on a topic that is not in my area of research interest, and even if I would be interested in professional trading sorry but it’s too much to ask to do this for free. There already is also Shillers work on irrational exuberance and fear and this would probably be just reinventing of the wheel
1muflon1
CC BY-SA 4.0
2023-08-27T15:22:00.747Z
u missed my point I just gave u an example. My question was how you map emotions into mathematical formalisms ? You can give me references.....
quanity
CC BY-SA 4.0
2023-08-27T15:27:41.600Z
@quanity depends on exact topic, for example for fear in a context of risk assessment and investment behavior you can have look at at Anderson (2021). You can model fear using a models with different states of mind. You will have some function $U(x)$ that maps responses of person to incentives under normal state of mind and another function $U_F(x)$ that does that under 'fearful' state of mind. Then you will have some switching mechanism/trigger based on whatever you think makes investors scared, for example some papers use negative expected return as a trigger for fear
1muflon1
CC BY-SA 4.0
2023-08-27T15:31:27.907Z
I was just trying to push all all the models into extreme situations until it breaks down btw what's was your research topic in PhD
quanity
CC BY-SA 4.0
2023-08-27T15:34:13.250Z
I was working on intersections of macro and policy economics. Also, comments are not supposed to be used for off topic chit chat (see our rules in the help center). Do you have any questions pertaining to my answer?
1muflon1
CC BY-SA 4.0
2023-08-27T15:39:00.390Z
I am not chit chatting just getting the context
quanity
CC BY-SA 4.0
2023-08-27T15:41:09.933Z
@quanity also can you please not misuse flags and make more work for us? Nothing I have written was rude. I just informed you about rules of this site which as a mod is literally my job. Btw when you created your account you agreed to follow those rules including our rules on commenting
1muflon1
CC BY-SA 4.0
2023-10-28T05:55:03.457Z
when you mentioned bounded nationality in your previous comment are you pointing towards work of Herbert Simon. Isn't it a coherent framework ?
quanity
CC BY-SA 4.0
2023-10-28T11:05:18.563Z
By coherent framework I didn’t meant just one single self containing theory, but rigorously derived model that can be used by other models that need to model decision making
1muflon1
CC BY-SA 4.0
2023-08-11T10:28:13.530Z
2023-08-11T11:03:03.640Z
2023-08-11T11:03:03.640Z
1muflon1
<p>A framework is not a model of a specific system,
but a way of formulating and studying a
variety of systems. Classical mechanics,
quantum mechanics and statistical mechanics are all really frameworks. In and
of themselves, none of these makes
direct predictions that can be ‘tested’ or
‘falsified’. For example, in classical
mechanics one can write down the Hamiltonian of a hypothetical system and
study the solutions of this problem, even
if such a system has no existence in nature and therefore, the solutions cannot
be compared to any experiment.
Within a framework we can make a
model of a chosen physical system and
try to experimentally test it. If the model
has been designed with suitable hindsight, it usually works up to some level
of accuracy. We then test it by working
to greater accuracy or varying the experimental parameters. What if the predictions
of a model disagree with an experimental
observation? There are several different
conclusions that may be drawn: (i) the
model is incomplete and can be improved by tweaking it; (ii) the model is
inappropriate to the problem at hand, or
(iii) the framework within which the
model was formulated is actually inadequate.</p>
<p>My question is I have seen many models in economics like Solow models ,Ramsey model, Black–Scholes model etc. Do we have particular <strong>frameworks</strong> in economics ??</p>

CC BY-SA 4.0
2023-08-10T19:28:19.027Z
I'd say a reasonable candidate is the framework of choice. People have preferences, and make choices based on those preferences, and so human behavior is driven by the attempt to choose things we prefer. This itself is loose enough to be basically unfalsifiable (partially due to preferences being unobserved and formation being a degree of freedom). You can extend this to the more specific *model* of rational choice eg Ramsey, which is falsifiable and runs up against the evidence, for example in behavioral economics.
NickCHK
<macroeconomics><microeconomics><mathematical-economics><philosophy-of-economics><model>
Frameworks and models in economics
quanity
# Frameworks and models in economics

(Asked by: username_0 on 2023-08-10)

A framework is not a model of a specific system,
but a way of formulating and studying a
variety of systems. Classical mechanics,
quantum mechanics and statistical mechanics are all really frameworks. In and
of themselves, none of these makes
direct predictions that can be ‘tested’ or
‘falsified’. For example, in classical
mechanics one can write down the Hamiltonian of a hypothetical system and
study the solutions of this problem, even
if such a system has no existence in nature and therefore, the solutions cannot
be compared to any experiment.
Within a framework we can make a
model of a chosen physical system and
try to experimentally test it. If the model
has been designed with suitable hindsight, it usually works up to some level
of accuracy. We then test it by working
to greater accuracy or varying the experimental parameters. What if the predictions
of a model disagree with an experimental
observation? There are several different
conclusions that may be drawn: (i) the
model is incomplete and can be improved by tweaking it; (ii) the model is
inappropriate to the problem at hand, or
(iii) the framework within which the
model was formulated is actually inadequate.

My question is I have seen many models in economics like Solow models ,Ramsey model, Black–Scholes model etc. Do we have particular **frameworks** in economics ??

**Tags:** macroeconomics, microeconomics, mathematical-economics, philosophy-of-economics, model
> **Comments:**
> **username_1**: I'd say a reasonable candidate is the framework of choice. People have preferences, and make choices based on those preferences, and so human behavior is driven by the attempt to choose things we prefer. This itself is loose enough to be basically unfalsifiable (partially due to preferences being unobserved and formation being a degree of freedom). You can extend this to the more specific *model* of rational choice eg Ramsey, which is falsifiable and runs up against the evidence, for example in behavioral economics.  

---

## 1 answers

### Answer by username_2 on 2023-08-11. Score: 2

What you call framework would be probably more appropriately called paradigm in philosophy of science, following the terminology set up by Kuhn in his seminal work.

There are paradigms or frameworks in economics. In economics people often call them 'schools of thought' , and laymen usually associate these schools of thought with some political set of beliefs or ideologies, but actually if you look into scientific literature they are paradigms that are independent of political or ideological values.

Some non-exclusive list of examples includes (taken from Brue & Grant History of Economic Thought 8th ed):

* Keynesian economics
* Neoclassical economics
* New-classicism
* New Keynesian economics
* Post-Keynesian economics

These can be considered analogies to frameworks such quantum mechanics, since they are not just a single theory but 'frameworks' or paradigm that leads to creation of theories and models.

For example the (old) Keynesian framework, that is nowadays no longer followed because it got replaced by the synthesis of Neoclassical and New Keynesian framework, emphasized modelling from top to bottom, and adaptive expectations. This sometimes leads to different models and theories than frameworks that emphasize bottom up modelling (i.e. starting from individual or household).

For example, the Ramsay's model you mention would be considered to be following neoclassical paradigm, because it starts with the behavior of representative household, and builds the economy from bottom up, besides other reasons.

> **Comments:**
> **username_0**: are they limiting case of each other and where they conceptually different from each other ?(Keynesian economics Neoclassical economics New-classicism New Keynesian economics Post-Keynesian economic)  
> **username_2**: @quanity they differ on various points, you can see the source I cited for more full treatment. For example, Keynesian paradigm stressed adaptive expectations as the correct approach to modeling people’s guesses whereas neoclassical economics stressed rational expectations. Some schools (especially the heterodox ones) depart more radically. For example, Austrian school of economics is opposed to statistical analysis because they argue that economic analysis must be deductive not inductive for example, whereas many schools of thought accept both induction and deduction  
> **username_0**: Could you explain me more about frameworks(may be how to come up with new one) and how to incorporate models into it  
> **username_2**: @quanity you come up with it the same way as Einstein came up with paradigm of Relativity that replaced paradigm of Newtonian Mechanics. You have to find some systematically important theory (i.e. theory that can be used to derive further theories and testable hypothesis (e.g. RCT, adaptive expectations, rational expectations) that has higher explanatory power than pre-existing theory. For example, rational expectations replaced adaptive expectations in macro because they could explain more stuff than just adaptive expectations, and in near future perhaps they will get replaced by  
> **username_2**: quasi rational expectations, which adds some behavioral component to rational expectations (e.g. like the work of Paul DeGrauwe) since that seems to explain some autocorrelation in macro series that was difficult for pure rational expectations to explain. However, no theory will every be perfect you are just zooming in on the true mechanism closer and closer, so there will for sure be something that quasi rational expectations won't explain. Once you find something like this you need to rigorously describe the mechanism so everyone can see the logic of it (i.e. best if you do it mathematically  
> **username_2**: and after that people have to start using it and build more theories with it, but if the previous condition of it being able to explain everything old paradigm did and something more, people will eventually pick up over course of 10-20 years it can be new dominant paradigm  
> **username_2**: regarding how you incorporate models into it, usually it starts by building analogues to current models with the new paradigm and see how results change. For example, when r.expect. were introduced giving raise to Neoclassical and later New Keynesian macro people just rewritten all the models in terms of rational expectations and look at how things changed and whether it better fits the data or not. This is not something one person can do since to become good in an area you need to specialize. But if you come up with some 'workhorse model' that is actually good other people will start using it  
> **username_0**: What are the limitations of current frameworks maybe we can start from it  
> **username_2**: @quanity as mentioned above one of the limitations in macro is that currently used rational expectations have problems with explaining high levels of persistence in macro series.  
> **username_0**: but we have works of Daniel Kahneman and Richard Thaler who uses behavior and irrational judgments of customers in decisions  
> **username_2**: @quanity 1. That has nothing to do with rational expectations, they are actually compatible with that line of behavioral work 2. The problem is that behavioral research does not yet offer some consistent framework. If you look at the behavioral models they are all rational choice theory (don’t confuse it with rational expectations) + some behavioral twist. For example, classic behavioral model is that of hyperbolic discounting. The hyperbolic discounting model is basically rational agent model in all ways except a discount factor that violates some conditions for rationality  
> **username_2**: To explain more than can be explained just by model with perfect rationality. But there isn’t any coherent framework for “bounded” rationality. Behavioral economics is so far just ad hoc modifications of rational choice theory. Btw this is another example where I guess someone could develop some new framework by trying to develop some rigorous model of bounded rational choice or something like that. There is some work on bounded rationality but nothing that would offer coherent framework that could encompass RCT and then some more  
> **username_0**: Say trading is driven by fear and greed. Could you help how to incorporate emotions into formalisms ( mathematical formulation)  
> **username_2**: @quanity help how? I can point you toward some textbooks where you can learn the math for economists. I don’t have time to work out full paper for you on a topic that is not in my area of research interest, and even if I would be interested in professional trading sorry but it’s too much to ask to do this for free. There already is also Shillers work on irrational exuberance and fear and this would probably be just reinventing of the wheel  
> **username_0**: u missed my point I just gave u an example. My question was how you map emotions into mathematical formalisms ? You can give me references.....  
> **username_2**: @quanity depends on exact topic, for example for fear in a context of risk assessment and investment behavior you can have look at at Anderson (2021). You can model fear using a models with different states of mind. You will have some function $U(x)$ that maps responses of person to incentives under normal state of mind and another function $U_F(x)$ that does that under 'fearful' state of mind. Then you will have some switching mechanism/trigger based on whatever you think makes investors scared, for example some papers use negative expected return as a trigger for fear  
> **username_0**: I was just trying to push all all the models into extreme situations until it breaks down btw what's was your research topic in PhD  
> **username_2**: I was working on intersections of macro and policy economics. Also, comments are not supposed to be used for off topic chit chat (see our rules in the help center). Do you have any questions pertaining to my answer?  
> **username_0**: I am not chit chatting just getting the context  
> **username_2**: @quanity also can you please not misuse flags and make more work for us? Nothing I have written was rude. I just informed you about rules of this site which as a mod is literally my job. Btw when you created your account you agreed to follow those rules including our rules on commenting  
> **username_0**: when you mentioned bounded nationality in your previous comment are you pointing towards work of Herbert Simon. Isn't it a coherent framework ?  
> **username_2**: By coherent framework I didn’t meant just one single self containing theory, but rigorously derived model that can be used by other models that need to model decision making  

---

