Is Economics a "Science"?

Science refers to a system of acquiring knowledge. This system uses observation and experimentation to describe and explain physical, natural, and societal phenomena.

The methodology employed by economists has a lot in common with that employed by natural scientists. Both attempt to construct theories or models which can then be used to explain and predict.

The scientific approach involves the 4 following steps:

1. Observation
2. Reasoning
3. Formulation of Theory
4. Testing
   

In the video shown below from the movie "A Beautiful Mind", you can see part of this scientific approach in use: The scene is set in a bar in which John Nash (played by Russell Crowe) rebutted Adam Smith's idea that, 'the best result comes from everyone in the group doing what's best for himself'. Adam Smith had said: "In competition, individual ambition serves the common good."

But John Nash took an opposing view.

In the movie, he observed what was going on in the bar, in which it was clear that all his friends had the same idea.. to go straight for a pretty blond girl who had just walked into the place with her other pretty (but not quite as pretty) friends. He related to his friends how they could all score if they all didn't go for the blonde but for her friends instead... He told them that, 'the best result will come where everyone in the group does what is best for himself ... and the group.' He envisioned a scenario -- a bargaining strategy -- in which nobody loses.. Watch how the idea (which was later developed into a theory) was conceived after he carefully observed the scene...

In case you missed the dialogue, here's the transcript:

Nash : Adam Smith needs revision.

Hansen : What are you talking about?

Nash : If we all go for the blonde...we block each other. Not a single one of us is gonna get her. So then we go for her friends, but they will all give us the cold shoulder because nobody likes to be second choice. Well, what if no one goes for the blonde?
We don't get in each other's way, and we don't insult the other girls.
That's the only way we win.
(Laughs)
Adam Smith said the best result comes from everyone in the group doing what's best for himself, right? That's what he said, right?

Others : Right.

Nash : Incomplete.
Incomplete, okay?
Because the best result will come...from everyone in the group doing what's best for himself...and the group.

Hansen : Nash, if this is some way for you to get the blonde on your own, you can go to hell.

Nash: Governing dynamics gentlemen. Governing dynamics. Adam Smith...was wrong.

Nash leaves the bar.

However, unlike natural sciences, economics lacks the ability to make precise predictions with accuracy due to the problems of:

• Impossible to conduct controlled experiments - Unlike physical and natural scientists who can actually hold other factors constant (in a lab setting) while changing a particular variable, economists deal with a constantly changing environment and complex interactions between individuals, groups and instituitions, etc, resulting in a need to make simplifying assumptions that will frequently not hold true (e.g. assuming "other things remain constant")

• Human behaviour is unpredictable -although people behave in broadly similar ways under similar conditions (e.g. when price falls, quantity demanded tends to increase), it is impossible to predict this behaviour with any accuracy. For example, factors such as consumer and business confidence are almost impossible to predict with any degree of accuracy.
  

Related link: Is Economics a Science by Leiter Reports? ; and Is Economics a Science by Greg Mankiw