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Published online by Cambridge University Press: 13 April 2010
In this paper I shall develop a formal description of the theory-data confrontation in economics. Theory-data confrontations may happen in many different situations. In some of them we find economists aiming to establish the empirical relevance of a theory. In others we meet econometricians in search of theoretical explanations for observed regularities in their data. In still others we encounter economic researchers producing evaluations of performance and forecasts for business executives and government policy makers. We label these situations, respectively, hypothesis testing, scientific explanation and prediction. I shall show that there is a unifying framework within which the activities in these situations can be characterized.