I sometimes encounter people who respond with the non sequitur, "Assumptions do not need to be realistic." If this response made sense, those who propound it would be able to specify which assumption is claimed to be unrealistic in these examples. Good neoclassical economists understand this logic.
Anyways, those economists that insist that assumptions do not need to be realistic - that, in fact, unrealistic assumptions are actually desirable - probably take their position from Milton Friedman. From Steve Keen's Debunking Economics, I found a response by Alan Musgrave to this idea. Musgrave, perhaps when combined with a later Uskali Mäki comment, seems to me perceptive. From these two authors, one can get a taxonomy of assumptions. Here's Musgrave's, albeit with the first reworded following Mäki's suggestion:
- Negligibility: "The hypothesis that some factor", or combination of factors "has an effect upon" "the phenomenon under investigation" "small enough to be neglected relative to a given purpose".
- Domain: A specification of the domain of applicability of a theory.
- Heuristic: An assumption for developing a theory in a simple form that can be removed in later approximations.
Update: Radek doubts some economists write "Economic theory shows..." As far as I am concerned, this is close enough:
"These observations should not be puzzling, for they are what standard economic theory predicts." -- Edward C. Prescott (1986). "Theory Ahead of Business Cycle Measurement", Quarterly Review, Federal Reserve Bank of Minneapolis (Fall): 9-22References
- Milton Friedman (1953). "The Methodology of Positive Economics", in Essays in Positive Economics, University of Chicago Press
- Uskali Mäki (2000). "Kinds of Assumptions and Their Truth: Shaking an Untwisted F-Twist", Kyklos, V. 53, Fasc. 3: 317-336
- Alan Musgrave (1981). "'Unreal Assumptions' in Economic Theory: The F-Twist Untwisted", Kyklos, V. 34, Fasc 3: 377-387