Friday, January 30, 2015

“Microfoundations” ain’t so microfounded

Bull Market and microfoundations:  fundamental right but does he miss the fact that these are supposed to be simplifying models?  The multiple layers of agency may be impossible to model.  Then you are left with a story.

 "And that tractable composite of all the principal and agent problems in the whole economy — what’s it going to look like? Well, it’s going to look like an “animal spirits”, from a classic Keynesian model, or one of Roger Farmer’s. We know that all the different levels of game theory interactions do sort of work out in the real economy, because investment behaviour does take place. But we also know that they’re subject to fairly wide swings and overreactions."

'via Blog this'

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