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American Economic Review: Vol. 101 No. 2 (April 2011)
AER Volume. 101, Issue 2 | 
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Falsifiability
Article Citation
Olszewski, Wojciech, and
Alvaro Sandroni. 2011. "Falsifiability."
American Economic Review,
101(2): 788-818.
DOI: 10.1257/aer.101.2.788
DOI: 10.1257/aer.101.2.788
Abstract
We examine Popper's falsifiability within an economic model in which a tester hires a potential expert to produce a theory. Payments are contingent on the performance of the theory vis-à-vis data. We show that if experts are strategic, falsifiability has no power to distinguish scientific theories from worthless theories. The failure of falsification in screening informed and uninformed experts motivates questions on the broader concepts of refutation and verification. We demonstrate an asymmetry between the two concepts. Like falsification, verification contracts have no power to distinguish between informed and uninformed experts, but some refutation contracts are capable of screening experts. (JEL B41)
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Authors
Olszewski, Wojciech (Northwestern U)
Sandroni, Alvaro (Northwestern U and U PA)
Sandroni, Alvaro (Northwestern U and U PA)
JEL Classifications
B41: Economic Methodology
