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Behavioral Finance: Meaning of Macroeconomics Report

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Kirman’s article is a critic on macroeconomists concept of a representative agent. Macroeconomists construct models that consider one representative’s choice as the choice for all. Kirman disagrees with economists reducing the behaviors of heterogeneous agents, even if they are utility maximisers, by indicating that it destroys the sense of analysis leading to wrong and misleading conclusions. Kirman further states that such a situation if applicable could lead to the stock market losing meaning asymmetrical information being senseless and disruption of government policy coordination (Kirman, 1992).

Kirman gives four reasons why he insists that the concept of a representative agent is primitive and erroneous. The main reason is that an individual’s position cannot be used to reflect the position of a community. We cannot find the micro-foundations of macroeconomics through studying a representative in isolation but by the collective study of the interaction of different individuals (Kirman, 1992). Kirman claims the need for a stable and unique framework for micro-foundations leads to economists settling on the representative agent model.

Kirman does not conclude without giving the option of the game theory as an alternative. Since the economies are full of infinite horizons, commodity spaces, and uncertainty, which add to the complexity of all economic models, the game theory is a better approach since it considers conflicting interests between different individuals in a heterogeneous group. The representative agent has many flaws since it tries to perfect the economy by analyzing a single individual(Kirman & Zimmermann, 2001). This is even though individuals have different expectations and opinions.

Keen strongly disagrees with the United States system of electricity deregulation. He powerfully condemns the act. The fact that since the enactment of the policy electricity bills has been on the rise supports his opinion. The pathetic state that arose from the deregulation led to Keen nicknaming the condition after the movie judgment day. As an economist, he blames the theories that the government put in place when enacting deregulation. Keen states that the decisions were misguided by false speculations and beliefs and, instead of the option of uplifting the economy, suppressed it (Keen, 2004). Keen disapproves of all the economic theories that support the concept describing their flaws and mishaps. Keen depicts certain flaws that the theory that brought about deregulation experiences. The Marshallian theory experiences two mathematical errors that support the neoclassical theory of preferring monopoly to competition.

Deregulation supports the motion of spot market pricing cons due to the experience it has had since its establishment, which has been detrimental (Keen, 2001). Keen also proves that the marginal cost rising does not improve production in over 95% of all sample cases. Pricing at marginal cost resulted in the bankruptcy of some companies after deregulation. Keen insists that the marginal cost pricing is not theoretically sound for any economy that supports its people. It is a fact that those monopolists who want to control the market set prices trying to equal the marginal costs with their marginal revenues. This means that they sell minimal outputs at higher prices that outdo even the competitive prices.

Kirman and Keen are economists who prefer markets benefiting the people rather than policies set up by ececonomistshat oppress the population. Their theories are supported by well-calculated substantial evidence. The theories they disapprove of have some flaws that are well stated and displayed. The two economy experts have some convincing ideas on what they believe to be.

References

Keen, S 2001, Debunking economics: the naked emperor of the social sciences, Pluto Press, London.

Keen, S 2004, ‘Deregulator: judgment day for microeconomics.’ Utilities Policy, vol. 12, no. 3, pp. 109-125.

Kirman, A 1992, ‘Whom or What Does the Representative Individual Represent?’ Journal of Economic Perspectives, vol. 6, no. 2, pp. 117-136.

Kirman, A, & Zimmermann, J 2001, Economics With Heterogeneous Interacting Agents, Springer publishers, New York.

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