All observed animals depend on water to exist 3. Inductive and Deductive Methods: 1) Deductive Method: The deductive method is also known as the abstract or analytical method. Often the conclusions derived from deductive reasoning are not applicable universally because the premises from which they are deduced may not hold good at all time and places. Again the use of statistics in induction cannot prove a hypothesis. Inductive methods require the use of statistical methods. Inductive reasoning in economics does the reverse of deductive reasoning; namely, it begins with an individual problem or question and proceeds to form a general principle based on the evidence observed in the real world of economic activity. The collected data are used to observe particular facts concerning our problem. In reality collection of data is not enlightening unless it is related to a hypothesis. Induction “is the process of reasoning from a part to the whole, from particulars to generals or from the individual to the universal.” Bacon described it as “an ascending process” in which facts are collected, arranged and then general conclusions are drawn. Observation 1.1. Dogs A and B have fleas 1.3. Reasoning is the process of using existing knowledge to draw conclusions, make predictions, or construct explanations. The next step in deduction is the framing of assumptions which are the basis of hypothesis. Merits And Demerits Of Inductive Method Inductive method (Inductive Reasoning) is an important method used by the economist for making conclusions on economic phenomena. Similar to inductive generalizations, statistical induction uses a small set of statistics to make a generalization. It is a powerful method of analysis for deducing conclusions from certain facts. Disclaimer 9. Thus induction ensures from time to time new problems to pure theory for their solution. Prohibited Content 3. Following are the major demerits of inductive method; The induction method is also known as the historical, empirical, and posterior method was advocated by economists related to German Historical School. This supposition was wrong. Once a generalization is established, it becomes the starting point of future inquiries. Further, the hypothetical conditions are so chosen as to make the problem very simple, and then inferences are deduced from them. It helps in future inquiries. It is based on facts and describes them as they truly are. It is usually argued that deductive research is interrelated to inductive analysis. Engel propounded the law only after he had studied several family budgets in Austria. Economic relationships are of less uniform patter in comparison with natural science. Thus, statistical techniques lack concreteness. The idea here is to remove or reduce the gap between theory and practice. (2) The formulation of assumptions on the basis of which the problem is to be explored. Copyright 10. New Delhi: Vrinda Publications (P) LTD. Save my name, email, and website in this browser for the next time I comment. Inductive approach, also known in inductive reasoning, starts with the observations and theories are proposed towards the end of the research process as a result of observations.. Inductive research âinvolves the search for pattern from observation and the development of explanations â theories â for those patterns through series of hypothesesâ. As a matter of fact, deduction and induction are the two forms of logic that help to establish the truth. For this purpose, economists now use statistical and econometric methods. For example, identify the missing terms in the given sequence: 1, 1, 2, 3, 5, 8, _, _, _. The two methods are 1. In this method changing economic phenomena can be analyzed based on experiences, conclusions can be drawn and appropriate remedial measures can be taken. DEDUCTIVE, INDUCTIVE, AND ABDUCTIVE REASONING. TOS 7. Since the actual world is very complicated, “what we do is to postulate in our own minds economic systems which are simpler than reality but more easy to grasp. This is done in two ways: First, through logical deduction. to research, a researcher begins by collecting data that is relevant to his or her topic of interest. This is the very well-known Fibonacci series, wherein the next term in a sequence is a sum of the previous two terms. Further, the use of the mathematical-deductive method helps in revealing inconsistencies in economic analysis. The best example of inductive reasoning in economics is the formulation of the generalization of diminishing returns. Bacon described it as an ascending process in which facts are collected; arranged and then general conclusions are drawn. Deduction involves four steps: (1) Selecting the problem. Inductions, specifically, are inferences based on reasonable probability. Statistical Induction. Then inferences are drawn which are verified against observed facts. It is the technique of a practical approach to the problem of economic science. It involves a detailed and painstaking process of collection, classification, analysis, and interpretation of data on the part of trained and expert investigators and analysts. Due to the complexity of certain economic problems, it becomes difficult to apply this method even at the hands of an expert researcher. If the hypothesis is not confirmed, it can be argued that the hypothesis was correct but the results are contradictory due to special circumstances. This method of analysis is based on the assumption that economic conditions remain constant. Through observation, some of the theories of generalization are developed or refined with the help of statistical methods. Then, the same activity is performed with another triangle, and the result is the same, 180º. Bacon described deduction as a “descending process” in which we proceed from a general principle to its consequences. In inductive reasoning, a conclusion is drawn based on a given set of patterns. were based on this method. Some of his actions are also bound by the legal and social institutions of the society in which he lives. In this method, problems are identified and defined, information relevant to the problem are collected, organised and analysed, leading to the establishment of an economic theory. First, the internal angles of a triangle are added and it is noted that they result in 180º. This method is dynamic. Some of the recent macroeconomic researches like the nature of consumption function describing the relationship between income and consumption, acceleration principle describing the factors which determine investment in the economy have been obtained through the use of induction or empirical method. On the basis of observation, generalisation is logically derived which establishes a general truth from particular facts. A simple example is to find out the result of the sum of the internal angles of a triangle. The inductive method can at best be used to empirically test the theory or hypothesis as to whether it is consistent with or refuted by fact. The inductive method was employed in economics by the German Historical School which sought to develop economics wholly from historical research. When there is little to no existing literature on a topic, it is common to perform inductive research because there is no theory to test. This type of reasoning flows from facts to theory. It helps to establish a general truth relating to a particular fact. If and because relationships (p) and (q) all exist, then this necessarily implies that relationship (r) exists as well. Engel’s Law of Family Expenditure and the Malthusian Theory of Population have been derived from inductive reasoning. It is concrete and synthetic because it deals with the subject as a whole and does not divide it into component parts artificially. The mathematically trained economist is able to deduce inferences in a short time and make analogies with other generalisations and theories. Ahuja, H.L. So the hypothesis stands verified. But other things seldom remain the same which tend to refute theories. It may be very wide like poverty, unemployment, inflation, etc. Despite these merits, much criticism has been levelled against this method by the Historical School which flourished in Germany. Researchers make hypotheses and explain some results based on general rules but often need to make new general theories to explain specific results that do not fit into the existing theoretical framework. For instance, the study of family budgets resulted in the composition of Engelâs law of consumption, which claims that when income rises, the proportion of income spent on food item decreases. This premise is based on a priori knowledge which will continue to be accepted so long as conclusions deduced from it are consistent with the facts. Indicators/Parameters of Economic Development, Comparison between Deductive and Inductive Method, Microeconomics – BBA / BBM / BIM First Semester, The Achievements of Development Planning in SAARC Countries, Constraints or Challenges of Development Planning in SAARC Countries, Income and Substitution Effects of a Price Change. Plagiarism Prevention 4. After we examine the inductive reasoning, we'll flip it and see what it looks like in the form of deductive reasoning. The historical or inductive method expects the economist to be primarily an economic historian who should first collect material, draw gereralisations, and verify the conclusions by applying them to subsequent events. Inductive reasoning is a method of logical thinking in which you use observations combined with experiential information you already know to be true to reach a conclusion. The inductive method makes use of the statistical method. To be fruitful for enquiry, the assumption must be general. Thus induction method has the merit of applying generalizations only to related situations or phenomena. Thus, the scope for controlled experiments in inductive economics is very little. Thus statistical techniques may lack correctness. A low-cost airline flight is delayed 1.2. (4) Testing and Verifying the Hypothesis: The final step in the deductive method is to test and verify the hypothesis. When economic analysis is conducted through deductive method, the economic analyst has to proceed from general to particular. Inductive methods require the use of statistical methods. Prof. Lerner, therefore, points out that the deductive method is simply “armchair analysis” which cannot be regarded as universal. They are the deductive and inductive methods. Employers look for employees with inductive reasoning skills. Privacy Policy 8. Data are used to make observation about particular facts concerning the problem. The verification of theories, generalisations or laws in economics is based on observation. Three methods of reasoning are the deductive, inductive, and abductive â¦ Inductive Methods. In an inductive approach Collect data, analyze patterns in the data, and then theorize from the data. Examples of the inductive method. Report a Violation, Scientific Theory: The Nature of Scientific Theory in Economics, Methods of Economic Analysis: Deductive Method and Inductive Method, Functions of Economies: Production, Consumption and Growth. In this method changing economic phenomena can be analyzed based on experiences, conclusions can be drawn and appropriate remedial measures can be taken. Every hypothesis is based on a set of assumptions. The âdeductive methodâ reasons from generalizations to particular instances. The best example of inductive reasoning in economics is the formulation of the generalisation of diminishing returns. Inductive Logic. All observed dogs have fleas 2.3. The inductive method was strongly advocated by economists belonging to the German Historical School. It is also described as a method where one's experiences and observations, including what are learned from others, are synthesized to come up with a general truth. Examples of Inductive Reasoning. Much research in fields as diverse as economics, physics, and biology make use of both deductive and inductive reasoning. In the end, the hypothesis is to be verified and if it is verified against the real-world data then it will generate the generalization from a specific fact. So deduction depends upon the nature of assumptions. Verification consists in confirming whether the hypothesis is in agreement with facts. Induction helps in future enquiries. This aids noteworthy improvements in the application of induction for analyzing economic problems of a wide range. For example, the hypothesis that firms always attempt to maximise profits, rests upon the observation that some firms do behave in this way. The deductive method derives new conclusions from fundamental assumptions or from truth established by other methods. If a hypothesis is deduced from wrong or inadequate data, the theory will not correspond with facts and will be refuted. Notes on Deductive and Inductive Method http://goo.gl/kAJE4K (4) Verifying the hypothesis. Before publishing your articles on this site, please read the following pages: 1. This method is realistic. Thus, induction suggests new problems to pure theory for their solution from time to time. For example: Since 95% of the left-handers Iâve seen around the world use left-handed scissors, 95% of left-handers around the world use left-handed scissors. But unlike the natural sciences, there is little scope for experimentation in economics because economics deals with human behaviour which differs from person to person and from place to place. Under these conditions, the hypothesis may turn out to the wrong. Inductive reasoning uses specific ideas to reach a broad conclusion, while deductive reasoning uses general ideas to reach a specific conclusion. However, the inductive method is not without its weaknesses which are discussed below. It involves the process of reasoning from certain laws or principles, which are assumed to be true, to the analysis of facts. Thus, the inductive method has the merit of applying generalisations only to related situations or phenomena. The induction is experimental including clear and substantial advantages in economic investigations and research. The inductive approach consists of three stages: 1. Thus this is a static method which fails to make correct analysis. For instance, the classicists assumed in their reasoning that particular conditions prevailing in England of their times were valid universally. But when facts refute the theory based on the tested hypothesis, the assumptions are also indirectly refuted. It means we proceed here from the particular to the general. In reality, both deduction and induction are related to each other because of some facts. In economics, most hypotheses remain unverified because of the complexity of factors involved in human behaviour which, in turn, depend upon social, political and economic factors. Inductive reasoning is a method of reasoning in which the premises are viewed as supplying some evidence, but not full assurance, of the truth of the conclusion. This aids noteworthy improvements in the application of induction for analyzing economic problems of a wide range. The use of deductive method is indispensable in sciences like economics where experimentation is not possible. When a hypothesis is tested, assumptions are indirectly tested by comparing their implications with facts. This article explains the Deductive Method of Economics; It involves the process of reasoning from certain laws or principles, which are â¦ Since economics is concerned with human behaviour, there are problems in making observation and testing a hypothesis. 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