Simon Wren-Lewis makes a plea for a more open attitude to
behavioural economics in macro. Overall,
Wren-Lewis supports the idea that macro models should be microfounded, but believes
that the micro foundations used are outdated and ignore inconvenient facts
about how people really behave.
To me, this is merely symptomatic of a more general problem
in economics. This is the tendency to focus
entirely on one particular paradigm or modelling style, and reject any approach that might contradict it. This seems to me a dangerous attitude.
Before I go any further I should say something about my own
approach. Those familiar with this blog
will know that I often resort to models to develop my own understanding and to
illustrate what I think are interesting points.
They will also probably have noticed that many of my models are of a
particular type, with a heavy focus on social accounting and institutional
structure.
However, the reason for this is not that I think this is the
only way to model, but is rather more basic.
The reason for the absence of New 'Keynesian' style modelling in this
blog is mainly that I'm not very good at it.
I never formally studied it and although I have enough of a grasp to be
able to understand other people's work on this, I do not feel fluent enough to
present ideas within that framework myself.
So I stick to what I know.
But that does not mean that I think DSGE modelling is
wrong. Actually, I don't think any
modelling is right or wrong. As I have said
before, all any model does is illustrate how certain conclusions flow from
certain assumptions. It never actually
tell us how things really are, because the assumptions always represent a gross
simplification of the real world.
This means, I think, that there is a lot to be learned from
taking into account the results of different models. Some models may be better than others, but
all have their weaknesses. Using
different approaches helps us identify those weaknesses and understand how to
interpret our results accordingly.
So what happens if two different models give us seemingly
contradictory results? Does this not
mean we have to choose to simply reject one of them? Absolutely not. In fact, I think this provides us with an
excellent opportunity to identify how crucial certain assumptions are and to give
us greater insight into the strengths and limitations of both approaches.
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