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Behavioral Macroeconomics and Macroeconomic Behavior † By GEORGE A. AKERLOF* Think about Richard Scarry’s Cars and

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Abstract

that book would have looked like in sequential decades of the last century had Richard Scarry been alive in each of them to delight and amuse children and parents. Each subsequent decade has seen the development of ever more specialized vehicles. We started with the Model T Ford. We now have more models of backhoe loaders than even the most precocious fouryear-old can identify. What relevance does this have for economics? In the late 1960’s there was a shift in the job description of economic theorists. Prior to that time microeconomic theory was mainly concerned with analyzing the purely competitive, general-equilibrium model based upon profit maximization by firms and utility maximization by consumers. The macroeconomics of the day, the so-called neoclassical synthesis, appended a fixed money wage to such a generalequilibrium system. “Sticky money wages ” explained departures from full employment and business-cycle fluctuations. Since that time, both micro- and macroeconomics have developed a Scarry-ful book of models designed to incorporate into economic theory a whole variety of realistic behaviors. For example, “The Market for ‘Lemons ’ ” explored how markets with asymmetric information operate. Buyers and sellers commonly possess different, not identical, information. My paper examined the This article is a revised version of the lecture George A

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Year: 2013
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