The Two Blades of Occam’s Razor in Economics: Logical and Heuristic
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This paper is part of the general debate on the need to rethink economics as a human discipline using a heuristic to describe its object, on the need to explicitly reject the positivistic approach in neoclassical economics, and on the urgency to adopt a different methodology, grounded on a realistic set of initial assumptions able to cope with the complexity of the decision making process. The aim of this paper is to show the use of Occam’s razor in the economic debate around realism in economic modelling. Occam’s razor can be intended as a principle of logic that emphasizes simplicity, or as a heuristic tool that emphasizes parsimony. Neoclassical economists such as Samuelson have explicitly used Occam’s razor as a logical principle to highlight the strict logic and simplicity of neoclassical economics; neoclassical models, however, are based on unrealistic assumptions. Some approaches of heterodox economics, au contraire, have used Occam’s razor as a powerful heuristic tool to emphasize parsimony, building up models grounded on realistic initial assumptions and able to embed complexity into the general explanation of economic behavior, like in Simon’s bounded rationality (1955; 1957) and Hayek’s notion of human rationality (1948; 1952; 1974) and cultural and social evolution (1967; 1978).