**Trygve Haavelmo and the Probabilistic Revolution in Econometrics**

Trygve Haavelmo (1911- ), a Norwegian economist who studied with Ragnar Frisch, has been credited with introducing the probabilistic approach to econometrics and to economic theory.7 Before the introduction of the probabilistic approach, economists assumed that the underlying economic theories they were trying to measure were exact. If one could in fact hold everything else constant, one would have an exact relationship. Haavelmo argued against that assumption, contending that we should treat economic theories as probabilistic theories that do not describe exact relationships but, instead, describe probabilistic relationships.

Before the publication of Haavelmo's paper "The Probability Approach to Econometrics" (1944, but widely circulated in manuscript form before 1941), econometricians used statistical methods but believed either implicitly or explicitly that probability theory had little to offer and that the underlying laws they were trying to find were exact laws. Haavelmo argued that because probability theory was the body of theory behind statistical methods, it was inappropriate to use statistical methods without accepting that one is searching for probabilistic laws. Acceptance of the probabilistic nature of economic laws allows the formal use of many statistical techniques and tests that previously were used without formal foundation; it lies at the heart of the modern approach to econometrics. Haavelmo received the Nobel Prize in economics in 1989.