Macroeconomic Theory for a World of Imperfect Knowledge

78 Pages Posted: 30 Jan 2013

See all articles by Roman Frydman

Roman Frydman

New York University (NYU) - Department of Economics

Michael D. Goldberg

University of New Hampshire

Date Written: January 30, 2013

Abstract

We have recently proposed an alternative approach to economic analysis, which we call Imperfect Knowledge Economics (IKE). Although IKE builds on the methodology of contemporary macroeconomics by modeling aggregate outcomes on the basis of mathematical representations of individual decision making, it jettisons models that generate sharp predictions. In this paper, we elaborate on and extend the arguments that led us to propose IKE. We show analytically that in order to avoid the fundamental epistemological flaws inherent in extant models, economists must stop short of fully prespecifying change. We also show how acknowledging the limits of their knowledge may enable economists to shed new light on the basic features of observed time-series of market outcomes, such as fluctuations and risk in asset markets, which have confounded extant approaches for decades.

Comments on this paper can be found at: http://ssrn.com/abstract=2209269

Suggested Citation

Frydman, Roman and Goldberg, Michael D., Macroeconomic Theory for a World of Imperfect Knowledge (January 30, 2013). Capitalism and Society, Vol. 3, Issue 3, Article 1, 2008. Available at SSRN: https://ssrn.com/abstract=2209264

Roman Frydman (Contact Author)

New York University (NYU) - Department of Economics ( email )

19 West 4th Street
New York, NY 10012
United States

Michael D. Goldberg

University of New Hampshire ( email )

Durham, NH 03824
United States
603-862-3385 (Phone)
603-862-3383 (Fax)

HOME PAGE: http://pubpages.unh.edu/~michaelg/

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