Modigliani's Contribution to the 'Carnegie Research Agenda'
30 Pages Posted: 25 Sep 2009
Date Written: September 22, 2009
In "Models of my Life" Simon reminds that it was not a coincidence if Carnegie-Mellon has been the incubator of the two antithetical schools of thought: Behavioral Economics and the Rational Expectations theory. The aim of this paper is to reconstruct Franco Modigliani’s contribution (as well as its relevance) to economics research at the new business school (the GSIA), so much oriented towards the study of decision making under uncertainty. In my paper I argue that his contribution went beyond his paper with Grunberg (1954), which role in anticipating the REH has been already recognized among others by Hand (1990), Klamer (1983), Sent (1998, 2002), Young (2002), Young et al. (2004). From the late 1940s Modigliani was increasingly interested in studying the role of expectations on business fluctuations. His search for a way to model expectations moved into two directions: trying ‘to neutralize’ the effect of the future through the certainty equivalence argument (Simoned defined an example of satisfacing behavior); assuming perfect foresight (correct public prediction).
The paper also investigates to which extent the ‘Carnegie style’ - characterized by its interdisciplinary, heterodox and problem-solving approach - affected Modigliani’s economics. Modigliani recalled that it was at Carnegie that he matured as an economist and defined the eight years he spent there (1952-1960) as the most productive, working on the exciting task of redesigning the curriculum of modern business schools, and writing exciting papers.
Keywords: Modigliani, Simon, GSIA, expectations
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