Five methodological fallacies in applied econometrics

This paper discusses five methodological problems in applied econometrics. These are the problem of measurement, data mining, publication bias, the Duhem-Quine critique, and the non-repeatable nature of historical events. These problems form a third source of error next to two other more common sources of error in econometrics, sampling error and specification error. The paper argues that these problems aggravate the already difficult task of testing, but can often be dealt with. In some circumstances however testing itself is inappropriate, and econometrics is better understood as a means for description than for testing. JEL classification: B40, C18, C50.