How to Win the Nobel Prize in Economics: A Methodology for Theoretical Innovation
How does theoretical progress in economics occur? Clues to the answer can be derived from the work of theorists who have been recognised for their innovative contributions to economic theory and from the philosophy of scientific progress. This paper takes the view that scientific progress is driven by unsolved problems and applies it to the seminal work of Nobel Prize winners, Kydland and Prescott (1977) with the aid of non-classical logic. From problem theory it is derived that problems are generated by inconsistent assumptions and thus slows down theoretical progress. Gifted economic theorists intuitively recognise inconsistencies, and employ various strategies to find synthetic assumptions that remove these inconsistencies. Their research often produces new inconsistencies, and so triggers further theoretical innovation by others. A reconstruction of Kydland and Prescott's work (and the work that followed) provides a running illustration, and shows that an understanding of the structure of economic problems can allow more theorists to deliver innovative theoretical work.
Keywords: Theoretical Progress, Problem Structure, Problem-Solving
Senior Lecturer, Economics Department, University of Johannesburg