Abstract

What Daniel Hausman has called 'the simple criticism of economic theory' affirms that neoclassical microeconomic models include false statements, and therefore economists cannot rationally accept such models. Hausman considers, but rejects, the modal view of economic models as a defense of neoclassical theory against the simple criticism. I attempt to show that, on the contrary, the modal view can be used to defend neoclassical micro theory. The modal view distinguishes theoretical from applied economic models. Theoretical models afford true descriptions of hypothetical economic agents, whereas applied models contain true or false statements about some real world situation. Relying on the modal view, I argue that the simple criticism is not well-founded, whether it concerns theoretical or applied models.