Behavioral Macroeconomics before and after the Great Recession

The subject of this article is a current state of macroeconomic theory and its post 2008–2009 crisis prospects. Authors apply wide critique of key mainstream points explaining at the same time the reasons for shifting accents towards behavioral macroeconomics. The proponents of this approach have challenged key neoclassical principles of rationality and optimal behavioral of economic agents and justify the necessity for considering heterogeneity of individuals, their cognitive constraints, psychological and behavioral patterns, emotional experience, internal settings and norms. It is the irrational patterns of the individuals, they argue, that shape pessimistic or optimistic waves they are influenced by, while behavioral instincts push them towards panics, fear and males them follow the crowd. Behavioral macroeconomics provides answers, otherwise impossible to explain within traditional macroeconomic framework and further develops them. The article observes the results of a number of studies prepared as part of this scientific field in such area as theories in consumption, investment, price movements, macroeconomic fluctuations and policy. The authors postulate that behavioral macroeconomics, while challenging new macroeconomics has not yet become an alternative scientific program comparable in its size and importance with New Classical theory or New Keynesians works. Macroeconomic cases of irrational behavior offered here can be thus integrated into a larger economic theory within new synthesis as a more realistic stage in its evolution.

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