Friday, March 2, 2012

Paul Krugman on Microfoundations

Great reading. Microfoundations are great, don't get me wrong. But this obsession over them and the dismissal of everything else as "ad hoc" frustrates me.

Point #3 is very important. This is a big point for me in this particular pet peeve. I hate it when people insist you're missing the complexity and emergent order of the economy by looking at aggregates. When I hear you say that, I automatically discount the extent to which I think you really comprehened the implications of emergent order for scientific analysis. If a system is complex, rooting around to correctly specify all the intricate microfoundations is EXACTLY WHAT YOU ARE UNLIKELY TO BE SUCCESSFUL IN DOING. You are better off getting a good solid sense of the operation of the system as a system than you are tracing your way through the complexity.

1 comment:

  1. I agree with you on Krugman's post. As an aside, Point 1 can also be used to defend the notion that human decision-makers are approximizers (sp?) rather than maximizers.

    However, for Point Three, the techniques of statistical mechanics used by the econophysics project might be able to get around those who obsess about microfoundations...


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