Ronald Schettkat, The Behavioral Economics of John Maynard Keynes. Microfoundations for the World We Live In

Abstract

When I started reading The Behavioral Economics of John Maynard Keynes, I could not figure out what would be the specific literature dealt with in the book. For sure, the subtitle Microfoundations for the World We Live In sets the stage for the ambition of the author to provide behavioral elements regarding economic agents and the most important decisions that bear on the final macroeconomic state of the economy, in order to convey an empirical foundation for explaining involuntary unemployment in a capitalist free-market economy. However, I had no prejudice regarding the approach that would be taken, the kind of behavioral literature that would be used or the methodological rationale that would be proposed. I just felt that Keynes’ views about the psychology of agents are complex. On the one hand, Keynes’ thought was rooted in the tradition of social psychology and casual empiricism, somewhat following Marshall’s thoughts on expectations. On the other hand, his views were derived from an in-depth reflection on the nature of knowledge and action, connecting together his thoughts on probability, uncertainty, animal spirits and beauty contests. I thus wondered how behavioral economics could help us to deal with this complexity.