Fed Chairman Alan Greenspan gave the Adam Smith Memorial Lecture at Kirkcaldy, Scotland earlier today - birthday of the great economist. As expected, it was a rather worthy affair. Unless you slept through your economic history classes I doubt readers would learn much. However one comment struck me as taking orthodoxy just a little too far: "The vast majority of economic decisions today fit those earlier presumptions of individuals acting more or less in their rational self-interest.”
I would have thought advances in behavioural finance and the 'new institutionalism' schools over the past two decades have highlighted gaping holes in the rather simple notion of an economy constituted by rational, self-interested individual economic agents. We now know that institutions matter, and that people often behave in seemingly irrational ways. Maybe someone in the Fed should tell the Chairman?
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