Analysis without Theory: How the Statistical Research Group Shaped Milton Friedman's Economic Methodology

Abstract

This article shows that Friedman's experiences with the research conducted at the Statistical Research Group (SRG) significantly shaped his 1953 methodology. These experiences gave him the ideas for a methodology for statistical analysis when dealing with “lousy data,” that is, when the conditions under which they are generated are not clear, when the data are “uncontrolled experiences.” Two views emerged from his SRG work. One is his view on theoretical assumptions: they only specify and do not determine under which conditions a model or device is expected to work. The other is his view on testing: the working of a device should be tested in comparison with a standard. Assessing the performance of a model with a benchmark model makes irrelevant the uncontrollable, only partly known, complex mass of circumstances under which both models perform. So both views were two sides of the same coin.