Wednesday, October 16, 2013
Microfoundations and Rational Markets
It is easy for an aggregate to be rational when there are few choices. And aggregates with few choices create macro stability. Behavioral economists: Mammals make distinct herds, they are macro stable by design. The whole controversy centers around the idea of systematically herding the aggregate differently with out of band signals. But its not a controversy, stimulus works in an aggregate sense because of the hegemon effect, and that is the aggregate signal, and its not out of band. I'm a believer, I just think the unKeynesians got the model screwed up somehow.
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