Alan Kirman (Université d’Aix-Marseille III)

“The Crisis in Economic Theory”

abstract

This presentation will suggest that we need an alternative approach to economic modeling in general, and macroeconomic modelling in particular, if we are to capture salient characteristics of recent economic developments. There has been an implicit acceptance of the idea that an economy in which individuals are left essentially to their own devices will self organise into an efficient state. We have never been able to show this and the impossibility of doing within the standard framework was shown in the seventies.

As a result, rather than focusing on equilibrium models built on the basis of isolated, rational, optimizing agents, we should recognize that much simpler individuals following basic rules can collectively generate complex behaviour and may never achieve an equilibrium. We have lessons to learn from studying the behaviour of social insects for example. Noisy systems of interactive agents can generate aggregate phenomena such as sudden changes in the state of an economy or market, with no external shock. I give examples of simple models of specific markets to illustrate this but would argue more generally that such models are indispensible if we are to understand aggregate
economic phenomena.