Thursday, 3 January 2013

Behavioural Macroeconomics

While reading the excellent book, "Thinking Fast and Slow" I had the following thought, which I hadn't read anywhere.  What if there's a form of behavioural bias present not only in individual human heads, as he describes, but that there's a parallel set of behavioural biases at the aggregate level, that is to say, at the macroeconomic level?

And further that these behavioural macroeconomic biases could form the basis of a new model for macroeconomics.  Wasn't this, in a sense, what Keynes was doing in the general  theory?  He conjured up a picture of aggregate representations of the key actors and situations in a semi-mathematical model.  The scenarios would be behavioural biases (aggregate behaviours which were not as you'd expect from standard utility maximisation of rational economic agents).