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Uncertainty, bounded rationality and post-Keynesian Macroeconomics

  • Finn Olesen

    ()

    (Associate Professor, Department of Environmental and Business Economics, University of Southern Denmark)

As a core element in mainstream neoclassical theory we assume that economic agents behave rationally. They have full information about everything of economic relevance at present, as well as concerning the future. They either maximize their profit or their utility. Is the model of the rational economic man realistic and a useful concept? According to post-Keynesians and the school of bounded rationality (e.g. the works of Herbert Simon and others) the answer to this question is ›No‹. In this paper we discuss some aspects of bounded rationality and the position taken by Keynes and by the post-Keynesians who argued that actual behaviour is restricted and less than perfect due to the existence of fundamental uncertainty as pointed out by Keynes in his General Theory. Therefore, the macroeconomic system should be seen as an open, changeable and path-dependent system.

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Article provided by Edward Elgar Publishing in its journal Intervention.

Volume (Year): 7 (2010)
Issue (Month): 1 ()
Pages: 109-124

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Handle: RePEc:elg:ejeepi:v:7:y:2010:i:1:p:109-124
Contact details of provider: Web page: http://www.elgaronline.com/ejeep

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  1. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
  2. Tony Lawson, 1999. "Connections and Distinctions: Post Keynesianism and Critical Realism," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 22(1), pages 3-14, October.
  3. Lawson, Tony, 1985. "Uncertainty and Economic Analysis," Economic Journal, Royal Economic Society, vol. 95(380), pages 909-27, December.
  4. Simon, Herbert A., 1978. "Rational Decision-Making in Business Organizations," Nobel Prize in Economics documents 1978-1, Nobel Prize Committee.
  5. David Dequech, 2007. "Neoclassical, Mainstream, Orthodox, And Heterodox Economics," Anais do XXXV Encontro Nacional de Economia [Proceedings of the 35th Brazilian Economics Meeting] 043, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics].
  6. Sheila C. Dow, 2004. "Uncertainty and monetary policy," Oxford Economic Papers, Oxford University Press, vol. 56(3), pages 539-561, July.
  7. Simon, Herbert A, 1978. "Rationality as Process and as Product of Thought," American Economic Review, American Economic Association, vol. 68(2), pages 1-16, May.
  8. Arestis, Philip, 1996. "Post-Keynesian Economics: Towards Coherence," Cambridge Journal of Economics, Oxford University Press, vol. 20(1), pages 111-35, January.
  9. Victoria Chick & Sheila Dow, 2005. "The meaning of open systems," Journal of Economic Methodology, Taylor & Francis Journals, vol. 12(3), pages 363-381.
  10. Daniel McFadden, 1998. "Rationality for Economists?," Working Papers 98-09-086, Santa Fe Institute.
  11. Victoria Chick, 2003. "Theory, method and mode of thought in Keynes's General Theory," Journal of Economic Methodology, Taylor & Francis Journals, vol. 10(3), pages 307-327.
  12. Morgan, Mary S., 2006. "Economic Man as Model Man: Ideal Types, Idealization and Caricatures," Journal of the History of Economic Thought, Cambridge University Press, vol. 28(01), pages 1-27, March.
  13. Paul Davidson, 1996. "Reality and Economic Theory," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 18(4), pages 479-508, July.
  14. Stephen P. Dunn, 2001. "Bounded Rationality Is Not Fundamental Uncertainty: A Post Keynesian Perspective," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 23(4), pages 567-587, July.
  15. Sheila C. Dow, 1996. "The Methodology of Macroeconomic Thought," Books, Edward Elgar Publishing, number 933.
  16. Tony Lawson, 1994. "The Nature of Post Keynesianism and Its Links to Other Traditions: A Realist Perspective," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 16(4), pages 503-538, July.
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