Behavioural Macroeconomics and Complexity program
Prof Dr Cars H. Hommes
- Di Guilmi C, Galanis G, Proaño CR, November 2022, A Baseline Model of Behavioral Political Cycles and Macroeconomic Fluctuations paper no. 71/2022.
- De Grauwe P, Ji Y, May 2022, Trust and monetary policy paper no. 35/2022.
- Galimberti J, July 2021, Initial beliefs uncertainty paper no. 68/2021.
Behavioural macroeconomics seeks to refine our understanding of the discipline by accounting for relevant features of human behaviour that are absent in the standard economics framework. Instead of assuming a hyper-rational representative agent, the basis for analysis are empirically well-documented psychological and sociological factors such as cognitive bias, fairness concerns, herding, and social status. Acknowledging the growing econometric and experimental evidence that human behaviour often fails the predictions of the rational expectations, full-information paradigm, this research program provides an umbrella for all research dedicated to melding the insights from behavioural economics and psychology with modern macroeconomics in a sound and rigorous way.
An integral part of this research agenda is the problem of aggregation and the presence of agent heterogeneity, which considers the economy as an adaptive nonlinear network that generates complex, emergent behaviour. Salient features of this approach include dispersed interaction of agents, multiple levels of organization and interaction, bounded rationality, continual adaptation of agents’ behaviours, actions and strategies, deep, unquantifiable uncertainty and persistent out-of-equilibrium dynamics.
The emphasis is both on theoretical and empirical models:
- Theoretical behavioural models will analyse the positive and normative macroeconomic implications of behavioural phenomena including, for example, prospect theory, hyperbolic discounting, adaptive learning, bounded rationality, habit/status concerns, money illusion, and endowment effects. Models of complexity analyse the properties of emergent behaviour, with a large emphasis on solution and simulation methods, including combinatorial mathematics, statistical mechanics and nonlinear computational algorithms. Many of these fall under the heading of agent-based models.
- Empirical models will use behavioural theory and complexity models to improve our statistical understanding and forecasting abilities of the macroeconomy and to analyse policy regimes and institutional features.These models are not only supposed to refine our understanding of individual choice but also help us understand and design better economic institutions and enhance overall welfare analysis.
The program seeks to foster a strong and growing network of researchers enthusiastic about behavioural macroeconomics and complexity. Activities will include workshops/conferences, collaboration with other CAMA research programs, and graduate courses/seminars on this topic.
Updated: 21 March 2023/Responsible Officer: Crawford Engagement/Page Contact: CAMA admin