2025/05/15 by Andrew Chen, Chen, Andrew Y.
Economics, Econometrics and Finance · #Complex Systems and Time Series Analysis #Economic Theory and Institutions #Economic theories and models
paper · pdf · doi:10.48550/arxiv.2505.10370
For many economic questions, the empirical results are not interesting unless they are strong. For these questions, theorizing before the results are known is not always optimal. Instead, the optimal sequencing of theory and empirics trades off a ``Darwinian Learning'' effect from theorizing first with a ``Statistical Learning'' effect from examining the data first. This short paper formalizes the tradeoff in a Bayesian model. In the modern era of mature economic theory and enormous datasets, I argue that post hoc theorizing is typically optimal.