Pranab Bardhan on Economics to blame?
- “Economics has a thriving micro part, which while lacking the immediacy and stridency of business headlines, goes on studying how millions of individual decisions are made and what impact they have on the daily lives of people from America to Zambia; in recent years microeconomics, while not giving up any of its theoretical rigour, has turned more and more to empirical data and new ways of testing hypotheses. In macroeconomics, in the last quarter century or so there has been a healthy turn towards establishing micro-foundations of macroeconomics, basing it ultimately on decisions by individuals rather than on vaguely derived aggregates. But in taking this turn some economists resorted to a kind of hyper-rationality in individual decision-making and ignored informational traps and financial frictions. A whole host of other economists (particularly those specialising in the economics of imperfect information and behavioural finance—fields by now well-established in Economics, and recognised by their own Nobel prizes) have been convincingly criticising this trend, pointing to human frailties (systematic departures from rationality) as well as asymmetries of information among the market participants. In this kind of critique, as in the received theories, economic analysis has sometimes involved complex models that have required mathematical abstractions.”