Asad Zaman — Methodology of Modern Economics

by
Mike Norman
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My paper is a survey of the huge amount of solid empirical evidence against the utility maximization hypothesis that is at the core of all microeconomics currently being taught today in Economics textbooks at universities all over the world. It is obviously important, because if what it says is true, the entire field of microeconomics needs to be re-constructed from scratch. Nonetheless, it was summarily rejected by a large number of top journals, before being eventually published by Jack Reardon as: ” The Empirical Evidence Against Neoclassical Utility Theory: A Review of the Literature,” in International Journal of Pluralism and Economics Education, Vol. 3, No. 4, 2012, pp. 366-414. Speaking metaphorically, my paper documents the solid evidence that the earth is a round sphere in world where educational institutions teach the widely held belief that the earth is flat. Readers of RWER blog will recall that when challenged on the failure of macroeconomics after the Global Financial Crisis, economists retreated to the position that while macro theory may be in a bad shape, at least Microeconomics is solidly grounded. My paper blows this claim out of the water. As a result, nothing is left of Micro and Micro, and of economics as whole. This supports my earlier claim that a Radical Paradigm Shift is required to make progress — patching up existing theories cannot work...

The central question remains of what is to be done. A complex response which requires coordination on multiple fronts is required. The first step has to be the development of a coherent alternative. I have developed a two semester micro coursewhich starts with the Anti-Textbook of Hill & Myatt, and follows up by using two main tools OPPOSED to maximization and equilbrium. Maximization is replaced by behavioral heuristics, which allow operation in environments with genuine uncertainty. Maximization is actually IMPOSSIBLE in uncertain environments. If I have to choose between actions a and b but the outcome to me depends on unknown state of natures and unknown acts of other agents then maximization is not possible. I cannot calculate which of the two actions will yield greater utility because the outcome depends on many thing I do not know, and cannot learn. SIMILARLY, if we equip all agents with heuristic behavior and try to compute what will happen, this can only be done within an Agent Based Model using computer simulations — which will generally lead to disequilibrium outcomes. Using these two tools to replace the central micro tools, one can go quite far in replacing standard micro with sensible alternatives....