Quote of the Week

A particularly clear example is furnished by the recent criticisms of the maximization-of-returns hypothesis on the grounds that businessmen do not and indeed cannot behave as the theory “assumes” they do. The evidence cited to support this assertion is generally taken either from the answers given by businessmen to questions about the factors affecting their decisions — a procedure for testing economic theories that is about on a par with testing theories of longevity by asking octogenarians how they account for their long life — or from descriptive studies of the decision-making activities of individual firms.  Little if any evidence is ever cited on the conformity of businessmen’s actual market behavior — what they do rather than what they say they do — with the implications of the hypothesis being criticized, on the one hand, and of an alternative hypothesis, on the other.

— Milton Friedman, “The Methodology of Positive Economics,” in Essays in Positive Economics (Chicago: University of Chicago Press, 1966), p. 31.

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