Dealing with uncertainty evolving beliefs, rationalizations & the origins of economic crises

Ricardo Crespo, Daniel Heymann and Pablo Schiaffino

No 2015-8, Documentos de trabajo del Instituto Interdisciplinario de Economía Política IIEP (UBA-CONICET) from Universidad de Buenos Aires, Facultad de Ciencias Económicas, Instituto Interdisciplinario de Economía Política IIEP (UBA-CONICET)

Abstract: The recent worldwide macroeconomic crisis reopened old questions about how agents define their economic plans and expectations. Debt crises disappoint previous anticipations and, by their very nature, they lead to deep revisions of beliefs about the functioning of the economic system. This crucial element of crises denies the standard rational expectations assumption (an ambiguous concept, also). The decision errors that result in crises do not necessarily derive from behavioural biases which make agents ignore prevalent views about economic prospects: often, those choices had been rationalized with reference to established conventional wisdom. Thus, understanding such socially relevant events requires addressing the concrete ways in which agents generate practical decision scenarios in changing environments, and how those interact with the modes of analysis accepted at their times. A revision of Keynes´ work on uncertainty can help in this respect. In this paper we analyse the crucial informational elements of macro crises, we discuss weaknesses of the standard modes of argument which try to accommodate critical phenomena into the rational expectations framework, and we comment on ways to move ahead, with reference to Keynes´s contributions.

Keywords: Macroeconomic Crises; Broken promises; Rationality of expectations; Keynes on uncertainty (search for similar items in EconPapers)
JEL-codes: B41 D81 D84 G01 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-07
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Persistent link: https://EconPapers.repec.org/RePEc:ake:iiepdt:20158

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