Stylized Fact

BIBLIOGRAPHY

The original idea of a stylized fact was introduced by Nicholas Kaldor (1908–1986) and applied to macroeconomic growth theory. Beyond the original application, the idea of a stylized fact is used throughout economics and the social sciences (and also in other scientific disciplines) as a simplifying abstraction of some social or economic process or fact. Being only a stylized fact, it is not a fact proper, but an assertion of what a researcher believes to be more or less true for a whole class of objects in question and with no reference to any concrete empirical finding. As Kaldor stated the problem of empirical observations, these “are always subject to numerous snags and qualifications” (Kaldor 1961, p. 178). Thus empirical observations and statistics distilled from them have always to be interpreted in the light of some theory. “[T]he theorist should be free to start off with a stylized view of the facts” (Kaldor 1961, p. 178)—this stylized view being a mental or verbal and in most cases still informal model of the domain of research. Empirical details, even contradictory ones, can be neglected in this early stage of research. Thus a first hypothesis explaining the stylized (and not the detailed empirical) facts can be generated.

Two stylized facts as quoted from Kaldor’s paper illustrate what Kaldor may have meant with this term:

As regards the process of economic change and development in capitalist societies, I suggest the following “stylized facts” as starting point for the construction of theoretical models: (1) The continued growth in the aggregate volume of production and in the productivity of labour at a steady trend rate; no recorded tendency for a falling rate of growth of productivity. (2) A continued increase in the amount of capital per worker, whatever statistical measure of “capital” is chosen in this connection. (Kaldor 1961/1968, p. 178)

Both of these stylized facts neglect details in the time series for measurements of productivity and capital per worker and are not even interested in the details of measurements (“whatever statistical measure … is chosen”). Moreover, a “steady trend rate” is observed—obviously a continuous deterministic function of time, as the “steady trend rate” can hardly be otherwise formalized.

Obviously, Kaldor’s stylized facts are statements about the outcome of some abstract social or economic process, not about the outcome of any concrete or real process. Thus stylized facts are not statements that aggregate the knowledge gained from the statistical analysis of many concrete social processes, but the interpretation of what a researcher distills from his or her experience of some social or economic processes. The problem with this view is that it is in a way immune to falsification, as any real economic process that is not in line with the stylized fact can be declared as something like noise (cf. Boland 1994, p. 536). Robert Solow even commented on Kaldor’s paper, saying, “there is no doubt that they are stylized, though it is possible to question whether they are facts” (Solow 1970, p. 2).

Thus, stylized facts can only be seen as starting points for further empirical and theoretical research. Recently, stylized facts have also been discussed as starting points for formal modelling and computer simulation of abstract social processes (compare, e.g., Gilbert 2000; Schwerin and Werker 2003). As Bernd-O. Heine et al. observe, the “value added by simulation models can be assessed by comparing the explanatory power of these models with respect to the relevant stylised facts to those using established methods” (2005, p. 2.11). In this sense the term is also used by Joshua Epstein (2006, p. 16), who lists several “stylized facts” such as the right-skewed wealth distributions (Epstein and Axtell 1996, pp. 7, 33–34) that were generated by the Sugarscape simulation model using a number of specified rules describing the behavior of individual agents. This is in any case an extension of Kaldor’s idea of stylized facts, as the simulation models mentioned provide microfoundation for stylized facts on the macro level.

BIBLIOGRAPHY

Boland, Lawrence A. 1994. Stylized Facts. In The New Palgrave Dictionary of Economics, Vol. 4, repr. with corrections, ed. John Eatwell, Murray Milgate, and Peter Newman, 535–536. London: Macmillan.

Epstein, Joshua M. 2006. Generative Social Science. Princeton, NJ: Princeton University Press.

Epstein, Joshua M., and Robert Axtell. 1996. Growing Artificial Societies: Social Science from the Bottom Up. Cambridge, MA: Massachusetts Institute of Technology Press.

Gilbert, Nigel. 2000. Modeling Sociality: The View from Europe. In Dynamics in Human and Primate Societies: Agent-Based Modeling of Social and Spatial Processes, ed. Timothy A. Kohler and George J. Gumerman, 355–372. New York: Oxford University Press.

Heine, Bernd-O., Matthias Meyer, and Oliver Strangfeld. 2005. Stylised Facts and the Contribution of Simulation to the Economic Analysis of Budgeting. Journal of Artificial Societies and Social Simulation 8 (4). http://jasss.soc.surrey.ac.uk/8/4/4.html.

Kaldor, Nicholas. 1961. Capital Accumulation and Economic Growth. In The Theory of Capital, ed. Friedrich A. Lutz and Douglas C. Hague, 177–222. Reprint ed. 1968. London: Macmillan.

Schwerin, Joachim, and Claudia Werker. 2003. Learning Innovation Policy Based on Historical Experience. Structural Change and Economic Dynamics 14 (4): 385–404.

Solow, Robert M. 1970. Growth Theory: An Exposition. New York: Oxford University Press.

Werker, Claudia, and Thomas Brenner. 2004. Empirical Calibration of Simulation Models. Papers on Economics and Evolution 2004–10. Jena, Germany: Max Planck Institute for Research into Economic Systems.

Klaus G. Troitzsch