Abstract

This paper considers the role of theory in our understanding of economic phenomena. While theoretical findings are sometimes claimed to have direct, real world relevance, this is based on rhetoric rather than logic. Theory can and has been considered as analogy, metaphor or framing. These aspects are discussed, along with the suitability of theoretical formulations, in particular perfect competition, as a basis for real world decisions. The issue of consistency is considered in relation to theory. Alternative interpretations are illustrated using the Tversky and Kahneman life/death rational choice case. These suggest that insufficient attention may be given to simplifying assumptions, or to the possibility of alternative explanations that are also consistent with the evidence. The rhetoric of acceptance and rejection of theory is then considered, and results are placed in the context of group membership and perspectives.