Induction Method

Induction Method

Induction, a method used in economic analysis to draw general principles or laws from observation of real life. For example, it may be found from a large number of industries or countries that, in periods when wages rise appreciably, employers' expenditure on welfare or fringe benefits rises less markedly or falls off. This series of observations may warrant the conclusion by induction that the market for these products was highly competitive, so that an increase in total costs could not easily be passed on to consumers in higher prices and a rise in one cost had to be offset by reducing or limiting the rise in others. A danger of induction is that it is like the historical method in general, which does not justify the conclusion that one development that follows another is necessarily caused by it: other causes less obvious and beyond the observer's attention may have been at work. An assembly of observations ('facts') that followed each other in time is not necessarily illuminating unless they are related to a 'theory' (or hypothesis) of cause and effect. Induction can be misleading without a framework of theory and deduction.

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