The fundamental flaw in conventional economic (econometric) modeling is the assumption of regularity that is supposedly supplied by microfoundations. "Microfoundations" assumes rationality and it is rationality that gives individual behavior regularity across individuals. It is the basis from assuming a representative agent as the totality of agents, disregarding supposedly irrelevant differences. Since all agents act rationally, it can be assumed, for example, that they are utility maximizers, and operate regularly irrespective of policy change and institutional difference.
This assumption is contradicted by empirical research in social science. The relationships of elements of a system, in this case individuals, are as important or more important than the individuals themselves in determining system outcomes. Murray cites a report of recent research by Joseph Henrich, Steven J. Heine and Ara Norenzayan of the University of British Columbia, The Weirdest People in the World, that calls into question the suitability of economists making assumptions based on personal introspection about rationality or even relying on psychological research on a limited population. "
As the three continued their work, they noticed something else that was remarkable: again and again one group of people appeared to be particularly unusual when compared to other populations—with perceptions, behaviors, and motivations that were almost always sliding down one end of the human bell curve.Fresh economic thinking
In the end they titled their paper “The Weirdest People in the World?”(pdf) By “weird” they meant both unusual and Western, Educated, Industrialized, Rich, and Democratic. It is not just our Western habits and cultural preferences that are different from the rest of the world, it appears. The very way we think about ourselves and others—and even the way we perceive reality—makes us distinct from other humans on the planet, not to mention from the vast majority of our ancestors. Among Westerners, the data showed that Americans were often the most unusual, leading the researchers to conclude that “American participants are exceptional even within the unusual population of Westerners—outliers among outliers.”
Given the data, they concluded that social scientists could not possibly have picked a worse population from which to draw broad generalizations. Researchers had been doing the equivalent of studying penguins while believing that they were learning insights applicable to all birds.
Micro-foundations don't escape Lucas Critique
Cameron K. Murra
Also, as Rumplestatskin, The basic flaw in all economic modelling
The question then becomes, is conventional economics descriptive or performative? Is neoliberalism assumed in the assumptions as a norm?
