Books and blogs and articles are flourishing about the need for a new paradigm in economic research, one that go beyond Rational Expectations and Efficient Markets, etc.

Non-economists are usually fastest in criticizing the flaws and the holes of the mainstream scientific paradigm in economics, however what they do not know is that those flaws and holes have been known for a long time: see, e.g., Scarf 1960, Mandelbrot 1963, Sonnenschein 1972, Stiglitz 1975, Kahneman/Tversky 1979, Anderson 1988. (The references are here).

Notice that those names are/were established and recognized scientists, not just eccentric mavericks or casual best-seller authors. (Also notice, as a telling detail, that Eugene Fama was working in Chicago on his doctorate with Mandelbrot when the latter developed his view of infinite-variance distributions of financial events…)

In other words: economists know more, of economics, than what non-economists think they know. The reason why a new economic paradigm has not emerged is that nobody has yet proposed a valid alternative.

(For that matter, no theoretical model, in any scientific discipline, is a perfect description of “reality”, because modeling always implies some simplification. What economics lacks, however, is a less axiomatic approach. This will not be easy, as controlled experiments in macroeconomics don’t seem easy ^_^).

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