Microfoundations

Microfoundations are an effort to understand macroeconomic phenomena in terms of individual agents' economic behavior and interactions. Research in microfoundations explores the link between macroeconomic and microeconomic principles in order to explore the aggregate relationships in macroeconomic models. During recent decades, macroeconomists have attempted to combine microeconomic models of individual behaviour to derive the relationships between macroeconomic variables. Presently, many macroeconomic models, representing different theories, are derived by aggregating microeconomic models, allowing economists to test them with both macroeconomic and microeconomic data. However, microfoundations research is still heavily debated with management, strategy and organization scholars having varying views on the "micro-macro" link. The study of microfoundations is gaining popularity even outside the field of economics, recent development includes operation management and project studies.

Microfoundations are an effort to understand macroeconomic phenomena in terms of individual agents' economic behavior and interactions. Research in microfoundations explores the link between macroeconomic and microeconomic principles in order to explore the aggregate relationships in macroeconomic models. During recent decades, macroeconomists have attempted to combine microeconomic models of individual behaviour to derive the relationships between macroeconomic variables. Presently, many macroeconomic models, representing different theories, are derived by aggregating microeconomic models, allowing economists to test them with both macroeconomic and microeconomic data. However, microfoundations research is still heavily debated with management, strategy and organization scholars having varying views on the "micro-macro" link. The study of microfoundations is gaining popularity even outside the field of economics, recent development includes operation management and project studies. ==History and importance== ==Challenges== Alan Kirman has argued against the common practice of using a representative agent as micro-foundation for macroeconomic models. First, he suggests that there's a conviction that the model of an individual as a constrained maximiser is adequate. On the basis of the Sonnenschein–Mantel–Debreu theorem, he argues that this conviction is mistaken. Second, he argues that there are multiple reasons as to why the economy cannot be described by a single 'representative agent'. Thus, he suggests that proper micro-foundations should be based not on studies of individuals in isolation but on studies of aggregate activity resulting from the direct interaction between different individuals. Similarly to Kirman, Robert Solow has argued that the issue with the microfoundation project is the demand that it must be built on Walrasian foundations. According to him, there is however no reason to believe that the world (and thus our microfoundations) should be Walrasian. Although sympathetic to microfoundations overall, Solow points out that the demand for micro-foundations might be exaggerated; the harder sciences do not necessarily describe their objects of interest down to e.g. a molecular level. S. Abu Turab Rizvi has similarly offered critique against the microfoundation project in general equilibrium theory. ==See also== Macroeconomics Microeconomics Macroeconomic model Lucas critique Dynamic stochastic general equilibrium Methodological individualism Behavioral strategy ==References==

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