by The explanation paradox in economics Hotelling’s model, then, is false in all relevant senses … And yet, it is considered explanatory. Moreover, and perhaps more importantly, it feels explanatory. If we have not thought much about Hotelling’s kind of cases, it seems that we have genuinely learned something. We begin to see Hotelling situations all over the place. Why do electronics shops in London concentrate in Tottenham Court Road and music shops in Denmark Street? Why do art galleries in Paris cluster around Rue de Seine? Why have so many hi-fi-related retailers set up business in Calle Barquillo in Madrid such that it has come to be known as ‘Calle del Sonido’ (Street of Sound)? And why the heck are most political parties practically
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The explanation paradox in economics
Hotelling’s model, then, is false in all relevant senses … And yet, it is considered explanatory. Moreover, and perhaps more importantly, it feels explanatory. If we have not thought much about Hotelling’s kind of cases, it seems that we have genuinely learned something. We begin to see Hotelling situations all over the place. Why do electronics shops in London concentrate in Tottenham Court Road and music shops in Denmark Street? Why do art galleries in Paris cluster around Rue de Seine? Why have so many hi-fi-related retailers set up business in Calle Barquillo in Madrid such that it has come to be known as ‘Calle del Sonido’ (Street of Sound)? And why the heck are most political parties practically indistinguishable? But we do not only come to see that, we also intuitively feel that Hotelling’s model must capture something that is right.
We have now reached an impasse of the kind philosophers call a paradox: a set of statements, all of which seem individually acceptable or even unquestionable but which, when taken together, are jointly contradictory. These are the statements:
(1) Economic models are false.
(2) Economic models are nevertheless explanatory.
(3) Only true accounts can explain.When facing a paradox, one may respond by either giving up one or more of the jointly contradictory statements or else challenge our logic. I have not found anyone writing on economic models who has explicitly challenged logic (though their writings sometimes suggest otherwise).