Buch, Englisch, 368 Seiten, Format (B × H): 164 mm x 244 mm, Gewicht: 649 g
Buch, Englisch, 368 Seiten, Format (B × H): 164 mm x 244 mm, Gewicht: 649 g
ISBN: 978-0-691-12160-4
Verlag: Princeton University Press
Posing a major challenge to economic orthodoxy, Imperfect Knowledge Economics asserts that exact models of purposeful human behavior are beyond the reach of economic analysis. Roman Frydman and Michael Goldberg argue that the longstanding empirical failures of conventional economic models stem from their futile efforts to make exact predictions about the consequences of rational, self-interested behavior. Such predictions, based on mechanistic models of human behavior, disregard the importance of individual creativity and unforeseeable sociopolitical change. Scientific though these explanations may appear, they usually fail to predict how markets behave. And, the authors contend, recent behavioral models of the market are no less mechanistic than their conventional counterparts: they aim to generate exact predictions of "irrational" human behavior. Frydman and Goldberg offer a long-overdue response to the shortcomings of conventional economic models. Drawing attention to the inherent limits of economists' knowledge, they introduce a new approach to economic analysis: Imperfect Knowledge Economics (IKE). IKE rejects exact quantitative predictions of individual decisions and market outcomes in favor of mathematical models that generate only qualitative predictions of economic change. Using the foreign exchange market as a testing ground for IKE, this book sheds new light on exchange-rate and risk-premium movements, which have confounded conventional models for decades. Offering a fresh way to think about markets and representing a potential turning point in economics, Imperfect Knowledge Economics will be essential reading for economists, policymakers, and professional investors.
Fachgebiete
Weitere Infos & Material
Foreword by Edmund S. Phelps xiii
Acknowledgments xxi
List of Abbreviations xxiii
PART I: From Early Modern Economics to Imperfect Knowledge Economics 1
Chapter 1: Recognizing the Limits of Economists? Knowledge 3
The Overreach of Contemporary Economics 3
The Aim of This Book 6
Contemporary Models in a World of Imperfect Knowledge 8
The Non-Fully Intelligible Individual 13
IKE Models 14
IKE of Exchange Rates and Risk 20
Imperfect Knowledge and Policy Analysis 23
From Contemporary Economics to Imperfect Knowledge Economics 24
Chapter 2: A Tradition Interrupted 26
The Stranglehold of the Contemporary Approach 27
The Non-Fully Intelligible Individual in Early Modern Economics 34
Jettisoning Insights from Early Modern Analysis 38
Chapter 3: Flawed Foundations: The Gross Irrationality of "Rational Expectations" and Behavioral Models 41
Conventional and Behavioral Representations of Preferences
with Uncertain Outcomes 42
Self-Interest, Social Context, and Individual Decisions 45
Individual Behavior and Aggregate Outcomes 48
From Early Modern to Phelps's Microfoundations 49
"Rational Expectations": Abandoning the Modern Research Program 49
Diversity of Forecasting Strategies: The Gross Irrationality of "Rational Expectations" 51
Inconsistency in Behavioral Models 54
Chapter 4: Reconsidering Modern Economics 58
Sharp Predictions and Fully Predetermined Representations 60
Qualitative Predictions of Change in Fully Predetermined Models 65
IKE Models of Change 66
IKE Causal-Transition Paths 70
Appendix 4.A: Fully Prespecifying Change in the Social Context 71
Appendix 4.B: Modeling Change in Outcomes with Fully Predetermined Probabilistic Rules 72
Chapter 5: Imperfect Knowledge Economics of Supply and Demand 74
Fully Predetermined Representations of Supply and Demand 76
Supply and Demand Analysis in Contemporary Models 79
History as the Future and Vice Versa 81
Supply and Demand Analysis in IKE Models 82
Irreversibility of History in IKE Models 86
PART II: "Anomalies" in Contemporary Models of Currency Markets 89
Chapter 6: The Overreach of Contemporary Models of Asset Markets 91
Describing Forecasting Behavior 92
Fully Predetermined Representations of Forecasting Strategies and Their Revisions 93
Modeling Economic Change with a Time-Invariant Structure 96
Models with Fully Predetermined Changes in Structure 101
Prespecifying Collective Beliefs in Currency Markets: Bubble Models 104
Appendix 6.A: A Conventional Macroeconomic Model 107
Chapter 7: The "Puzzling" Behavior of Exchange Rates: Lost Fundamentals and Long Swings 113
Exchange Rates and Macroeconomic Fundamentals: The Futile Search for a Fully Predetermined Relationship 114
The Exchange Rate Disconnect Puzzle: An Artifact of the Contemporary Approach 120
Macroeconomic Fundamentals over Long Horizons: Self-Limiting Long Swings 121
Can REH Models Explain Long Swings in Exchange Rates? 126
REH Bubble Models and the Pattern of Long Swings in Real World Markets 131
Lost Fundamentals and Forsaken Rationality: Behavioral Models 134
Chapter 8: "Anomalous" Returns on Foreign Exchange: Is It Really Irrationality? 138
The Record on Foreign Exchange Returns 140
An REH Risk Premium? 144
Is Irrationality the Answer? 147
The Forward-Discount "Anomaly": Another Artifact of the Contemporary Approach 151
PART III: Imperfect Knowledge Economics of Exchange Rates and Risk 153
Chapter 9: Modeling Preferences in Asset Markets: Experimental Evidence and Imperfect Knowledge 155
Prospect Theory and Speculative Decisions 159
Endogenous Loss Aversion and Limits to Speculation 167
Experimental Evidence and Behavioral Finance Models 170
Moving beyond Behavioral Finance Models 173
IKE Representations of Preferences in Asset Markets: Individual Uncertainty Premiums 176
Imperfect Know
