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Licensed Unlicensed Requires Authentication Published by De Gruyter December 16, 2008

Macroeconomic Theory for a World of Imperfect Knowledge

  • Roman Frydman and Michael D. Goldberg
From the journal Capitalism and Society

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.

Published Online: 2008-12-16

©2011 Walter de Gruyter GmbH & Co. KG, Berlin/Boston

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