Gregory Mankiw, a Harvard economics professor and author of the textbook, "Principles of Economics," describes the scientific method as "Observation, Theory, and More Observation." Scientists in fields ranging from astronomy to zoology formulate theories based on observation, then conduct research and experiments to test the validity of those theories, often yielding new explanations that advance the frontiers of scientific knowledge. Mankiw writes that theory and observation interact in the economic world, as well. Economists observe economic events, conduct research, and analyze data and develop theories to explain unemployment, inflation, consumer and firm behavior, and other economic concepts.
Mankiw cautions, however, that economists lack the laboratory that other scientists have. A physicist, he writes, can drop objects repeatedly to test theories about gravity, but an economist cannot manipulate a nation's monetary policy to test theories about inflation.
Many economists have advised governments on public policy, and often their advice reflects their own biases and ideologies. However, economists claim a scientist's objectivity when conducting scholarly research and preparing papers for peer-reviewed journals. Mankiw writes in a 2006 paper that most economists use their research to explain economic phenomena in a manner free of bias or ideology.
Assumptions and models help scientists simplify complex phenomena in the natural world, making it easier to understand. A plastic model of the human body, for example, will omit many details, but it serves as a useful tool for explaining the workings of the human body. Mankiw writes that economists have their own models -- often consisting of diagrams and equations -- that help simplify economic ideas. For example, a large modern economy produces thousands of goods and services, but a popular economic model simplifies this by illustrating a hypothetical economy that produces two goods: guns and butter. Just as a biological model may not include every detail of human anatomy, Mankiw concludes, an economic model does not capture every facet of a nation's economy.