The current crisis has shown how far macroeconomic theory is from the economic phenomena it is supposed to explain. I give some historical explanations for the development of this gap between theory and reality. Then I discuss the solidity of the foundations of the general equilibrium model and...

The economics profession appears to have been unaware of the long build-up to the current worldwide financial crisis and to have significantly underestimated its dimensions once it started to unfold. In our view, this lack of understanding is due to a misallocation of research efforts in...

In standard economic theory, mechanisms like Adam Smith's "invisible hand" or the Walrasian auctioneer balance aggregate demand and supply and match individuals such that the market clears. Usually, some kind of price adjustment process is assumed without specifying how the implied transactions...

We show that a class of microeconomic behavioral models with interacting agents, derived from Kirman (1991) and Kirman (1993), can replicate the empirical long-memory properties of the two first-conditional moments of financial time series. The essence of these models is that the forecasts and...

This paper suggests that people can learn to behave in a way which makes them persistently unlucky or lucky. Learning from one's own experience, as it reinforces a few lucky or unlucky outcomes in early periods, will lead them to repeatedly make choices that lead to lucky or unlucky outcomes. In...