The irresistible charm of the Microfoundations, or the overwhelming force of the discipline's Hard Core?

Skouras, Thanos and Kitromilides, Yiannis (2013): The irresistible charm of the Microfoundations, or the overwhelming force of the discipline's Hard Core?

Abstract

The appeal of the microfoundations project in economics is strongly supported by the considerable force of the discipline's "hard core" (in Lakatos' sense). This is especially the case, if the microfoundations metaphor is seen as a way of giving precedence to microeconomics in unifying economic theory rather than as requiring that all macroeconomic propositions are reduced to or derived from microeconomic ones. Given the micro-theoretical nature of the "hard core", the microfoundations project and professional respect for the "hard core" have become closely intertwined and the orientating and disciplining role of the latter is of crucial importancε in driving the former. Thus, questioning the microfoundations project is tantamount to confronting the "hard core". Maximization of utility and maximization of profit, which are the two most fundamental tenets of the "hard core", both suffer from serious weaknesses. Maximization of utility is not only contradicted by a lot of experimental and other empirical evidence but it is also neither necessary nor sufficient for establishing the "law" of demand. Profit maximization is falsified both on theoretical and empirical grounds, in the case of large corporations under managerial control, and is inconsistent or implausible in the case of small owner-run firms. Consequently, privileging micro over macro theory does not ensure sound foundations and the microfoundations project makes little sense. It follows that the search for consistency between microeconomics and macroeconomics should best be pursued in terms of the bridge metaphor.

• Item Type: MPRA Paper
• Language: English
• Keywords: microfoundations, "hard core", utility maximization, profit maximization, methodological individualism, fallacy of composition, "unity of science", professionalization of economics
• Subjects: A - General Economics and Teaching > A1 - General Economics > A14 - Sociology of Economics; B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology > B41 - Economic Methodology; D - Microeconomics > D0 - General > D01 - Microeconomic Behavior: Underlying Principles

References

Al-Najjar N., Baliga S. and Besanko D. (2008), «Market Forces Meet Behavioral Biases: Cost Misallocation and Irrational Pricing», Rand Journal of Economics, 39(1), 214-37.

Baumol W. J. (1959), Business Behaviour, Value and Growth, Macmillan, (revised edition, Harcourt,Brace and World, N.York, 1967).

Becker, G.S. (1962), «Irrational Behavior and Economic Theory», Journal of Political Economy, Vol. 70, No. 1 (Feb.), 1-13.

Berle A. and Means G. (1932), The Modern Corporation and Private Property, Transaction Publishers, (2nd edition, Harcourt, Brace and World, N. York, 1967).

Boland, Lawrence A. (1981), «On the Futility of Criticizing the Neoclassical Maximization Hypothesis», American Economic Review, 71, 1031-6.

Camerer, C. F., Loewenstein, G. and Rabin, M. (2004), Advances in Behavioral Economics, Princeton University Press, Princeton, NJ.

Cyert R. M. and March J. G. (1963), A Behavioral Theory of the Firm, Prentice-Hall.

De Scitovszky T. (1943), «A Note on Profit Maximization and its Implications», Review of Economic Studies, 57-60.

Hall R. and Hitch C. (1939), «Price Theory and Business Behaviour», Oxford Economic Papers, 2, 12-45.

Hildenbrand, W. (1994), Market Demand: Theory and Empirical Evidence, Princeton University Press, Princeton NJ.

http//:economistsview.typepad.com/economistsview/2011/04/what-i-learned-in-econ-grad-school.html.

King J. E. (2012), The Microfoundations Delusion: Metaphor and Dogma in the History of Macroeconomics, Edward Elgar Publishing, Cheltenham.

Lakatos, I. (2001), The Methodology of Scientific Research Programmes, Cambridge University Press.

Latsis, S.J. (1976), Method and Appraisal in Economics, Cambridge University Press.

Marris R. (1963), «A Model of the Managerial Enterprise», Quarterly Journal of Economics. Also, Marris R. (1964), Theory of «Managerial» Capitalism, Macmillan.

Rizvi, S. Abu Turab (2006), "The Sonnenschein-Mantel-Debreu Results after Thirty Years" History of Political Economy (Duke University Press) 38.

Schumpeter, J.A. (1954), History of Economic Analysis, Allen and Unwin, London.

Simon H. (1955), «A Behavioral Model of Rational Choice», Quarterly Journal of Economics, 69(1), 99-118.

Simon H. (1959), «Theories of Decision-Making in Economics and Behavioral Science», American Economic Review.

Simon H. (1964), «On the Concept of Organizational Goal», Administrative Science Quarterly.

Skouras, T. (1980), “The Tools of Demand and Supply: Good for an Economist or a Parrot?” in Freris A. and Skouras T. “Against Demand and Supply: Two Essays”, Thames Papers in Political Economy, Summer.

Stigler G. J. (1950), «Development of Utility Theory II», Journal of Political Economy, Vol. 58, No. 5, 373-396.

Williamson O. E. (1963), «Managerial Discretion and Business Behavior», American Economic Review.

Williamson O. E. (1964),The Economics of Discretionary Behavior, Prentice-Hall.