2023/02 | LEM Working Paper Series | ||||||||||||||||
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Why is economics the only discipline with so many curves going up and down? There is an alternative |
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Giovanni Dosi |
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Keywords | |||||||||||||||||
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Demand and supply curves ; aggregation ; utility function ; production function; costs and prices ; dynamical systems; Agent Based models
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JEL Classifications | |||||||||||||||||
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C60, D01, D20, D50
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Abstract | |||||||||||||||||
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Even the most rudimentary training from Economics 101 starts with
demand curves going down and supply curves going up. They are so
'natural' that they sound even more obvious than the Euclidian
postulates in mathematics. But are they? What do they actually mean?
Start with "demand curves". Are they hypothetical 'psychological
constructs' on individual preferences? Propositions on aggregation
over them? Reduced forms of actual dynamic proposition of time
profiles of prices and demanded quantities? Similar considerations
apply to "supply curves". The point here, drawing upon the chapter by
Kirman and Dosi, in Dosi (2023), is that the forest of demand and
supply curves is basically there to populate the analysis with double
axiomatic notions of equilibria, both 'in the head' of individual
agents, and in environments in which they operate. Supply and demand
"curves", I am arguing, are one of the three major methodological
stumbling blocks on the way of progress in economics, the other
related ones being 'utility functions' and 'production functions.
There is an alternative: represent markets and industries how they
actually works, and model them both via fully fledged Agent Based
Models and via lower dimensional dynamical systems.
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