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Equilibrium Models in EconomicsPurposes and Critical Limitations$
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Lawrence A. Boland

Print publication date: 2017

Print ISBN-13: 9780190274320

Published to Oxford Scholarship Online: May 2017

DOI: 10.1093/acprof:oso/9780190274320.001.0001

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Recognizing knowledge and learning in equilibrium models

Recognizing knowledge and learning in equilibrium models

(p.79) Chapter 6 Recognizing knowledge and learning in equilibrium models
Equilibrium Models in Economics

Lawrence A. Boland

Oxford University Press

This chapter introduces Part II, discussing the limits of equilibrium models. This chapter discusses how the recognition of time and information within models results in the need to deal with expectations explicitly. This leads to the problem of explaining nature of a decision maker’s knowledge – is it quantity-based or quality based. That is, is knowledge like wealth or like health. The chapter also provides a discussion of the main property that every neoclassical equilibrium must provide. Specifically, an equilibrium model’s explanation of economic events must not violate methodological individualism. The chapter criticizes the presumption that methodological individualism must be compatibility with a psychology-based model of the individual decision maker. Using a psychology-based model of the individual can undermine the idea of completely free choice, which was the original appeal of the equilibrium models.

Keywords:   information dynamics, expectation and probabilities, methodological individualism, multiple equilibria, psychologism, quantity-based knowledge, quality-based knowledge

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