Our subject is the foundations of econometrics, but this in turn rests on the philosophy of science. We need to consider whether and how claims to have established scientific knowledge can be justified, and this calls for a review of the long-standing arguments over induction, culminating in the recent revival of this literature in the work of Mayo and Spanos (2010), focusing it directly on statistics and econometrics and offering avenues to solve the recalcitrant philosophical problems of induction, explanation and theory testing. The traditional problem of induction arises within empiricist philosophy. It is appropriate to start with it, since the early econometricians tended to consider themselves empiricists, even positivists. Spanos (2010, p. 235) argued that ‘the initial optimism that was associated with the promise of the new statistical methods of the Cowles Commission to significantly improve empirical modeling in economics became pessimism by the late 1960s’. Morgan (1990a, p. 1, italics added) notes that.
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