The uses of economic theory

Economists are excessively influenced by the so-called positive economics view, which says that economists should only describe and not prescribe. Here I argue that this view is flawed because it makes unreasonably strong assumptions about what players (the agents taking economic decisions) know and understand. I then use the example of micro-credit to show how this bias towards positive economics has distorted the policy debate. Keywords: Positivist Methodology, Mechanism Design, Micro-credit. JEL Classifications: B4, D8, O2.