Introduction to Empirical Research
There would be no econometrics without the existence of data. It is data that helps econometricians to make useful decisions. In any case, each one of us is faced with decision-making issues. And since human beings are rational beings, they need to see proof that something is more beneficial than the other before settling on it. In other words, they look at the probability of one thing profiting them over the other. Nobody likes to lose, and when you consider the game theory, there are a lot of issues that come up concerning decision making by human beings. We all need some kind of motivation. And it all comes down to the most favorable outcome.
Economists must carry out research to verify certain information that could be useful in setting specific action causes in response to a different situation. Take, for instance, a company trying to introduce and a new product on the market. They will first need to know their target market area, determining whether it is they will consume the product. This also includes looking at checking out potential competitors and what they are doing in terms of market capitalization. If there is room for a new player, they will try to bring onboard their product with a better offer, perhaps reduced prices as a strategy to attract more customers on their side.
Economics and data
All this information is proven through data. And to make an even more crucial and supported decision, the decisionmaker may need to verify the data. Understand that using economic data can be very tricky if you don’t know what different kinds of data stand for. Even if you carry out statistical analysis and don’t know how to use it effectively, it may only prove to be very costly for your cause. Therefore, it is vital to know that every piece of information that comes from any source must have specific characteristics that make it good for use. Researching is of the most important ways of getting ahead with crucial information. And even in it, there are still some rules to observe concerning the type of information you will need.
Empirical research is one of the best methods economists find useful data. Consider, for instance, the case of a new firm in the example above. This company will first need to send a team into the field to carry out research, say on the consumption rate of a particular product. In order to get the right information, they will have to come up with a hypothesis, which forms the foundation of the research. In short, they need a set of questions that defines what they are looking to understand. For the best outcome, the research needs to directly experience the phenomena, which is why they compare it against a theory or a hypothesis. In many cases, consumer theory is used to determine what people are most likely to consume based on specific factors, which include, mainly, scarcity.
As an economics student, one of the main subjects you are going to face is econometrics, which is simply the application of data in economics. This subject calls for a proper understanding of data and data collection methods. Hence, empirical research is not something you are going to avoid. It helps one develop the important skills of observation and conclusion making based on the most probable cause of action. And since data affects everyone and everything in the modern world, it becomes very crucial for an economics student to understand proper sourcing and application.
What is empirical research?
As stated above, data is very important in decision making, especially for firms and governments. When policymakers want to come up with another rule, for instance, concerning the direction of an economy, they first look at the existing data, compare to what is happening, and then come up with a theory that a certain cause will lead to a certain effect. In this case, the research has to be based on observation and measurement of the phenomena. It is the direct experience of the researcher represented in figures, making it easy for further research, or drawing the most critical solutions. Decisionmakers need data gathered through different means, in empirical research, compared to theory.
Empirical research is all about a real-life experience. Before the 2008/2009 Great Recession, household consumption in many economies was incredibly high. This is because the economy was booming, and consumers felt more comfortable spending than consuming. In other words, they would use their money to buy things that improved their lives at the moment rather than looking at the future. But when the financial crisis occurred and markets collapsed, things took a whole new turn. Consumers were now more concerned about what would happen next than the current situation. They now needed some form of assurance that their future was somehow secure, hence becoming more cautious about spending and saving more.
When something like this happens again, researchers use such real-life experience to come up with the best solution for the situations. It takes more than just knowing how people will react to a situation, but also the best way to ensure it never happens again, or if it does, there is already a strategy in place to handle the outcome. Data helps us define life, and there is nothing better than having proof that what happens may affect another process economically.
Therefore, empirical research is any form of research in which conclusions are strictly drawn from pieces of evidence. It is indeed, verifiable evidence. If the data collected, have a problem and does not seem to answer the researcher’s question, it ceases to be empirical. This type of research mainly relies on qualitative and quantitative methods of data collection.
Let’s use another example. It is assumed that listening to exciting music while working can improve creativity. It helps that mind relax, and the person to concentrate only on happy moments, which helps them tap into their innermost person. In this case, one would need to come up with a method to collect information from a sample location and use it to prove their hypothesis. For instance, they can use a musical survey site with a large number of audiences who listen to the music and compare it to another group who don’t listen to music at all in the same area. The two situations are critically observed, and the results derived from it should offer undoubted evidence that the sounds either promote creativity or do not. It all comes down to having evidence that one thing affects the cause of another. People need to know that they can count on what they see and that it is easy for them to make certain decisions because the outcome is favorable.
Empirical research can be easily explained based on the famous quote, “seeing is believing.” This quote is said to have originated from ancient empiricists and is a basic understanding that fueled the foundation of medieval science. Renaissance researchers sought empirical evidence before making any decision, and they had to test everything they came across, laying an important background for modern science. The term “empirical” has its roots in Greek. It comes from the term ‘empeirikos,’ which means “experienced.”
Today, empirical simply means a collection of data by use of observation or experience, through the application of calibrated scientific instruments. And you can see that in each case, there is something common, that it all depends on observation and experience to come up with verifiable data, before making conclusions. Empirical research, as stated above, is one of the most aspects of the modern economy and other scientific processes. Proving that one thing causes another to happen is all one needs to make their decisions, because, as said earlier, human beings are rational.
Quantitative research methods are applied to gather information using numerical data. It applied when quantifying opinions, behaviors, and other definite variables are necessary. The variables are predetermined and approached with a more structured method. In most cases, researchers use surveys, longitudinal studies, polls, and many other methods to derive quantitative data. Note that all data that comes at the end of the study must be analyzed. Researchers also use this method to analyze empirical evidence and answer empirical questions with definite findings.
Quantitative analysis is crucial in looking at the verifiable evidence gathered more keenly. Researchers will tell whether the hypothesis can be supported or not. Some of the methods used in this regard include:
This kind of research is used where a large area of study is involved in getting a large amount of data. For it to be successful, the researcher needs to come up with a predetermined set of closed questions that are easy to answer. Simplicity is key to this kind of research, which leads to the highest level of response.
For instance, natural energy sources are become depleted by the day, which has become a general cause of concern for the whole world. For this reason, consumers need to be made aware of better alternatives like renewable energy. Recent studies have shown that more than 80% of the world still relies on fossil fuels, even amidst the rise of green energy. A researcher may want to find out the reason behind this trend, hence come up with questions about factors that influence consumer choices for many consumers in different locations. Empirical evidence can be used in helping authorities create proper awareness of the cause of action by consumers for their benefit.
An experiment can be set and an assumption tested by creating a situation that manipulates one of the variables. In this case, the researcher is looking to determine cause and effect. They can carry out a test to see what happens when either the independent or the other variable is removed. It is done by simply proposing a hypothesis, experimenting on it, and then reporting the findings that the theory is either supported or not.
One may seek to understand whether higher educated individuals will get higher jobs. In this case, it means higher education is a prerequisite for a better paying job, while less education is the opposite. Correlational research, as the term suggests, seeks to discover the relation between two sets of variables, where regression is usually applied to determine the outcome.
What is the importance of exercising? If one decides to research this, they will need to observe their subject for a specific time. In this case, they are seeking to understand the traits of the behavior of a subject under observation after going through a repeated set of processes.
This is an observational type of research where a specific set of target variables are observed at a specific point of time. A group can be chosen in the fashion that brings out the similarity in all variables, but the one under research.
This is a research method based on the comparison. It seeks to understand the cause-effect relationship between two or more variables mainly. For instance, one can carry out research to determine the company's productivity that gives a break to their employees.
Qualitative research methods
Sometimes, research questions need to be approached qualitatively, where quantitative methods are not applicable. Many cases require in-depth information, or perhaps the researcher needs to observe a target audience in terms of behavior, which is represented in a descriptive form. Hence, the results are descriptive rather than predictive. These methods are used to come up with conclusions in support of the hypothesis under study.
Qualitative methods include:
- Case study
- Observational methods
- One-on-one interview
- Focus group
- Test analysis
Sometimes the research may call for a combination of several methods, where the questions cannot be concluded with only one type of method. It is important more so where the researcher is looking to get a complete understanding of a complex area of study.
Empirical research is one of the best methods it discovers and proves specific types of data. It is based on observation and capturing experience, which is why it is vital for the researcher to plan their steps effectively. They need to resolve problems and obstacles that may occur during the experiment.
Author: James Hamilton