The scope of deduction, induction and abduction (inference to the best explanation) in economics is discussed in this chapter. Although an essential and pervasive component in economic reasoning related to the analysis of open real-world systems, abduction is hardly mentioned in the methodology of economics literature. Explanatory features – often left unaccounted for by formal logic: deductivist methods – should be an important part of the rational evaluation of scientific hypotheses and inferences. A theory or model has to be a successful explainer of the facts we try to describe and analyse. For economics to be a relevant knowledge-generating project, given ever-changing ontological conditions, abduction should be given a central role in the inferences made in real-world contexts with incomplete information and uncertainty. Reasons are given for believing that ampliative abduction, as an inferential method, in most real-world economic contexts outperforms formal logic using both deduction and induction.

The most important recent development in macroeconomic theory seems to me describable as the reincorporation of aggregative problems such as inflation and the business cycle within the general framework of microeconomic theory. The concept of rational expectations was first developed by John Muth and later applied to macroeconomics by Robert Lucas. Macroeconomic models building on rational expectations microfoundations impute beliefs to the agents that are not based on any real informational considerations, but simply stipulated to make the models mathematically-statistically tractable. The analogy between microeconomic behaviour and macroeconomic behaviour is misplaced. Empirically, science-theoretically and methodologically, neoclassical microfoundations for macroeconomics are defective. Its ultimate building-block is the perception of genuine uncertainty and that people often simply do not know. Economists defending the microfoundationalist programme often also maintain that there are no methodologically coherent alternatives to microfoundations modelling economic models based on the choices and acts of individuals is the only scientific game in town. 

This collection of previously published and new papers is a major intervention in the on-going debate about the nature and future of economics. Instead of the present deductivist-formalist orientation of mainstream economics, Lars Syll advocates for the adoption of a more pluralist approach to economics, arguing for more realism and relevance with less insistence on mathematical modeling. This challenging and thought-provoking book will prove a stimulating read for researchers, academics and students of economics interested in the methodology and philosophy of economics.