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December 11, 2018 

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MARGINAL PROPENSITY TO INVEST: The proportion of each additional dollar of national income that is used for investment expenditures. Or alternatively, this is the change in investment expenditures due to a change in national income. Abbreviated MPI, the marginal propensity to invest is the slope of the investment line used in the analysis of Keynesian economics. As such, it also plays a role in the slope of the aggregate expenditure line and the multiplier effect.

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HYPOTHESIS:

A reasonable proposition about the workings of the world that is inspired or implied by a theory and which may or may not be true. A hypothesis is essentially a prediction made by a theory that can be compared with observations in the real world. A hypothesis usually takes the form: "If A, then also B." The essence of the scientific method is to test, or verify, hypotheses against real world data. If supported by data over and over again, a hypothesis becomes a principle.
A hypothesis is created through informed ignorance. Informed because it is implied by a theory that has been previously subjected to a great deal of scrutiny. But ignorance, because no one yet knows for sure if the hypothesis is correct. A given hypothesis may or may not be true. In fact, a hypothesis is best considered as a "principle in the making." A principle, or law of nature, is the end result of a long, scrutinizing process that starts with a hypothesis.

Theoretical Implication

A hypothesis is implied by, or derived from, a theory. The theory can be informal or sophisticated. It can contain a few simple assumptions and axioms or hundreds of detailed mathematical equations. The resulting hypothesis can take the form of a simple statement, such as gravity causes the apparent movement of the sun across the sky, or it can be exceedingly complex, involving multi-variable equations and pages of detailed calculations.

The market theory provides an example of hypothesis derivation. The market theory is based on a few simple assumptions and previously verified principles, such as the law of demand and the law of supply. One hypothesis generated from this market theory is that a lower price, such as what might be imposed by a government regulation (that is, a price ceiling), causes a shortage.

This hypothesis can be stated in the form of "If A, then B":

If the market price is below the equilibrium price, then a shortage results.
Or it can be stated in the form of "A causes B."
A market price below the equilibrium price causes a shortage.
Either form is acceptable.

Data Mining

In some circumstances, a hypothesis is actually derived in reverse order, a process that is not recommended by the scientific method. With this reverse order, a lot of information is collected about a particular topic, then the data is analyzed until something useful is identified, that is, two events are found to be correlated. A reasonable explanation for this apparent correlation is then offered.

While this sort of "data mining" is common, the preferred scientific approach is to generate a hypothesis first, based on implications of a theory, then test the hypothesis against the data.

Verification

A hypothesis is generated for the sole purpose of verification, to see if a theoretical implication actually transpires. Verification, or testing, is the process of comparing a hypothesis with real world data. The verification process has two outcomes--the hypothesis is supported by the data or it is refuted by the data.
  • Hypothesis is Supported: Suppose that real world data agree with a hypothesis? That is, the implications of a theory are supported by the facts. What can be concluded?

    A successful test provides support for the hypothesis, but not absolute proof. To get reasonable proof, a hypothesis needs to be tested many, many, many times under many, many, many different conditions. But even then, a hypothesis is never 100 percent, absolutely proven. Science can NOT prove any hypothesis absolutely.

    Each test that supports a hypothesis moves it closer and closer to a verified principle. If the hypothesis is verified enough, it is ultimately incorporated into the theory for a new, expanded theory.


  • Hypothesis is Refuted: Now suppose that real world data do not agree with a hypothesis? That is, the implications of a theory are not supported by the facts. What can be concluded?

    While a hypothesis can never be absolutely proven to be absolutely true, it can be disproven, it can be rejected as false. Rejecting a hypothesis, however, is also useful and informative. When disproven, the hypothesis is known to be NOT true. This is worth knowing.

    If a hypothesis is refuted, then something is wrong. Perhaps the theory generating the hypothesis is wrong. Perhaps one or more of the previously verified principles or unverifiable axioms in the theory is wrong. Perhaps the specific test is bad. Perhaps the data are flawed.

    Whatever the reason for refutation, a "failed" testing prompts further inquiry.


  • Further Testing Needed: The one inescapable conclusion from the hypothesis-verification process is the need for further testing. Whether a hypothesis is accepted or rejected, the recommendation is to test again. But this conclusion should not be surprising. Science is an ongoing process of discovery.

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Recommended Citation:

HYPOTHESIS, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: December 11, 2018].


Check Out These Related Terms...

     | verification | principle | theory | empirical | data | assumption | phenomenon | ceteris paribus | cause and effect | model | world view |


Or For A Little Background...

     | scientific method | economic analysis | economic thinking | science |


And For Further Study...

     | fallacies | fallacy of false cause | political views | seven economic rules | sixth rule of ignorance | elasticity | law of demand | law of supply | shortage | utility analysis | short-run production analysis | equilibrium |


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