Modern microeconomics (1930s -)
The period of modern economics spans from 1930s until today.
Some economists and historians of economics argue that modern mainstream economics can be still called neoclassical economics, as it is no different from the approach of Marshall or Walras.
However, others, and we accept their judgment, claim that since 1930s economic theory has been changed so much, that it can not be called neoclassical anymore.
And since there is no better name for the period as far, they call this period from 1930s up to today - simply modern economics.
We have said also that modern economics cannot be called neoclassical anymore for it moved from neoclassical economics in several dimensions.
What is most important, many assumptions of neoclassical thought were rejected or modified in modern period.
For example marginal calculus was replaced by more advanced mathematical methods - set theory and others.
The assumption of perfect rationality of economic agents was modified by insights from psychology and become in many modern models rather the assumption of limited, bounded rationality.
Further, the set of issues to which economic analysis was applied expanded enormously since neoclassical. Modern economics is involved in analysis of many various areas of inquiry, which previously belonged to other social sciences.
Moreover, while neoclassical economics focused on unique equilibria states in economic models, modern economics deal frequently with multiple equilibria - there is no unique equilibrium, but many possible equilibra in modern models.
Finally, neoclassicals believed generally that is stable and economic depressions are short-lived and that the markets automatically recover from them. Therefore, they favored laissez-faire economic policy.
In modern economics, macroeconomic views are definitely much more complicated.
Since the Keynesian revolution of 1930s, we have several important and popular schools of macroeconomics in which it is claimed that there is no inherent force in capitalism, which would bring the system back to full employment in the period of depression. This view would not be allowed in neoclassical period.
Therefore, economics has changed profoundly from 1930s. Modern economics is much more eclectic (derives its assumptions and methods from several sources) than neoclassical ever was. It uses assumptions that are more diverse and cover much more areas of inquiry.
The only unifying feature of modern economics seems to be - model building. Modern economics relies on building mathematical models, which are further subject to empirical testing.
In addition, what is important here is that mathematics used in building models can be of different level of abstraction and definitely not limited to marginal analysis of neoclassical economics - we can find very abstract mathematics in modern models like the use of set theory and more applied mathematics like game theory.
This is another difference between modern and neoclassical economics, since economic research in neoclassical period was not necessarily conducted in a modeling mode.
The movement away from neoclassical economics has been ongoing since the 1940s. It was a gradual process, slow transition. Neoclassical economics is still taught in undergraduate textbooks, because the modeling approach of modern economics is too difficult to teach on this level.
We will start our discussion of modern economics by a short series of lectures devoted to the developments of modern mainstream microeconomics, later we will turn to the 20th century macroeconomic thought, and finally we will discuss some achievements of modern heterodox, non-mainstream schools of economics.
So today, we start with modern mainstream microeconomics and the main subject of the lecture is the so-called formalist revolution in economics. The impact of revolution was mainly on microeconomics, but it can be argued macroeconomic part of economics was also influenced by this process.
Something happened to economics in the decade of the 1950s that is little appreciated by most economists and even some historians of thought.
The subject went through an intellectual revolution as profound in its impact as the so-called Keynesian Revolution of 1930s. In the effect of this revolution, economics became quite a different science from its neoclassical image. In few years after Second World War, there was a profound intellectual transformation of economic science. We call it the Formalist Revolution.
In the interwar period, in 1920s, 1930s a characteristic feature of economics was that it was pluralistic. In the US we had co-existing many versions of neoclassical economics, institutional school and historical school, while in Europe above mentioned schools co-existed with Austrian school of economics and Marxian approach to economics.
A wide variety of modes of investigation, techniques of analysis and types of policy advice were acceptable in economics in the interwar period. There was no mainstream current of thought in the interwar time. For example in the US institutionalism was slightly more popular than neoclassical economics, but both types of economics were recognized as genuinely scientific and well respected. In addition, there were many advocates of historical school of economics approach, who also were considered as “true” economists.
Therefore, pluralism on the theoretical and methodological level was a dominant feature of economic science before the Second World War.
All that has changed in the decade of 1950s. In the decade institutional, Austrian, Marxian, historical and many other approaches had been marginalized, and since then the mainstream appeared in economics. Economics, and especially microeconomics, became globally uniform in the analytical style, in methods employed in the analysis, and in theoretical results considered important and valid.
The most evident feature of this transformation from pluralism to mainstream led economics is the fact, that economics just after the Second World War quickly became a mathematical science.
The process of mathematization of economics is well documented in empirical studies. For example, the proportion of articles using mathematical expressions in the two major economic journals, the American Economic Review and the (British) Economic Journal, increased from no more than 10% in 1930 to around 75% in 1980.
If in the interwar period and of course before the First World War, you could make a significant contribution to economics without the use of mathematics, it is no longer possible since 1950s. Recall that John Maynard Keynes writing in the mid 1930s managed to transform macroeconomic thinking, so we speak about Keynesian revolution in macro thought and yet he did not use any mathematical reasoning in his writings.
From 1950s economics became a mathematical science and if a contribution to economics is to be considered as scientific and serious it has to be expressed in some form of mathematical formalism.
It can be some abstract mathematical formalism as sets theory or mathematical logic, or more applied formalism as game theory for example, but some form of mathematical reasoning has to be employed if a paper or a book is to be taken as a piece of scientific economics.
It is hard now to publish a paper in a well-respected international journal if it does not use some mathematical formalism.
Moreover, as you probably know from your studies, quite extensive knowledge of various branches of mathematics (like calculus, algebra, mathematical programming, mathematical statistics, some game theory and the like) is needed to understand modern economics.
Before the Second World War, the situation was completely different. Even at many prestigious universities, you did not study any mathematics as a part of studying economics. For example, you could graduate from the famous British LSE in early 1940s, without knowing how to differentiate or integrate variables. As you know today this is a basic mathematical knowledge of students of economics.
There is more, some economists claim that economics in the period from 1950s to 1980s was more mathematical than even natural sciences, than physics. In economics, many very advanced mathematical techniques were applied, and as we learn soon, some very abstract mathematical tools were especially created by mathematical economists to prove economic theorems. Therefore, economists contributed even to the development of mathematics itself.
However, the mathematization of economic language is only one symptom, one external feature of the formalist revolution. It does not lie at the heart of the revolution; it is to some degree only a by-product of the revolution.
The essence of the formalist revolution is that in 1950s and later it was almost universally accepted in economics that the appropriate mother structure for the elaboration of economic theory is the neo-Walrasian general equilibrium theory developed in an axiomatic framework.
Neo-Walrasian - that is updated, modern version of Walras's GET.
This is the most important feature of formalist revolution. Since 1950s, most economists agreed that the most fundamental economic theory is Walrasian GET developed in axiomatic framework. They thought that it would be best if all other theories could be reduced or based on some version neo-Walrasian GET. In this sense in this view, GET was to be mother structure for all economic theories.
All theories, both micro- and macroeconomic should be in this view based on GET and if this approach would be successful, economics would be a united science - on the platform of GE. This is the general project of many attempts of mathematical economists during the time from 1950s to 1980s - to fund all economic theories on GET formulated by the use the so-called axiomatic method.
And the essence of formalist revolution is this conviction that there should be universal foundation of economic science and that the best possible candidate for such a foundation is a specific version of GET developed in a certain mathematical mode - in an axiomatic fashion.
The most important contributions to formalist revolution consisted of various attempts to develop GET in such a fashion and to reduce all other important theories of economics (macroeconomics included) to GET.
Other currents of economic thought, especially those non-mathematical in nature, like institutionalism or Austrian school of economics approach, were quickly marginalized as unscientific or not enough scientific. Simply a mainstream thought in economics has appeared, based on axiomatic GET, and other approaches became less and less popular.
Since 1950s, such approaches as Marxian, Austrian, institutional, historical are considered to be outside the mainstream and therefore not as scientific as the most popular, mainstream approach.
There were, of course, other versions of neoclassical economics than GE approach of Walras. Marshall for example has formulated the approach based on partial equilibrium, simpler that GE and not as mathematically sophisticated as GE approach.
This Marshallian version of neoclassical economics still survived after 1950s, but it was generally transferred to undergraduate textbooks and considered as useful rather only in the process of early education of economists. In research, it was considered not rigorous enough as compared with GE approach.
Formalist revolution was therefore a great after war attempt to build a mathematically well founded GET and to reduce all other important theories of economics (macroeconomics included) to GET.
It is called formalist revolution and not a GE revolution for example, because it involved a heavy use of formal mathematical methods. In addition, often, while developing GET after the Second World War, economists expressed a preference for the form of their arguments over its content.
That is their preferred even weak arguments, but expressed in a formal mathematical language over possibly stronger or more important arguments, but expressed in a less formal mathematical language.
Hence, because of this preference for formalism, for formal mathematical arguments, this process of mathematization of economics, process of the emergence of mainstream economics after the Second World War, is called formalist revolution.
Now, we said that in 1950s and later a general view of most influential economists was that all economic theory should be based on some variant of GET developed in an axiomatic mode.
Now, the question of what is an axiomatic method?
To answer this question we have to look for a moment in the history of mathematics in the 19th and 20th century. It is necessary to turn to the history of mathematics to explain the history of economics in the 20th century, because as we have stated, in the 20th century economics has become a mathematical science.
Therefore, we have to understand how mathematics had been changing in the period, because it influenced the way how mathematics was employed in economics.
In general, there are two visions of mathematical rigour that were employed in economics in the 20th century.
The first one is, we could say, the 19th century or empirical vision of mathematical rigour. The predominant attitude of economists to mathematics at the turn of the 19th century was ambivalent and suspicious. This view was shared by English neoclassical economists (e.g. Alfred Marshall and later J. M. Keynes) but also by American Institutionalists and to more extent by various proponents of the German Historical School.
Mathematical rigour to this group of economists meant that properly formulated economic concepts and theories should correspond to some measurable objects and identifiable causal relationships in reality.
That is mathematical models in economics should refer only to some events and processes which exist in the real economy - this is the most important feature of this concept of mathematical rigour, which was shared by English neoclassical economists, institutionalists, and other economists in late 19th century and in early 20th century.
However, in the early 20th century another concept of mathematical rigour appeared in mathematics and was quickly transferred to economics. This is the axiomatic approach.
According to this view of mathematics, rigorous arguments are those, which are derived axiomatically, i.e. developed by the means of formal logic from the set of basic, independent and mutually consistent propositions (axioms). Those axioms do not have in principle to correspond to any existing object, it is enough if they are consistent with one another and fertile, we could say, that is that they imply interesting consequences in theory, you can derive from them interesting mathematical theorems.
Axiomatic approach from 1920s to at least 1980s was considered in mathematics as the most rigorous approach to mathematical inquiry.
It was this new “axiomatic approach” to mathematics that has invaded mainstream economic theory from the 1950s on.
Therefore, there have been two main competing notions of mathematical, and therefore scientific, rigour prevailing in the twentieth-century mathematical economics. The “old” one, 19th century, “empirical view” associated with developing theories in a mathematical form from observations about the economy and ultimately subjecting them to empirical testing and the “new” one based on the axiomatic approach.
The former in the course of the 20th century was preferred by applied economists and econometricians, while the latter - axiomatic one was preferred by theorists in mainstream economics. In the first place, they used axiomatic approach to develop GET as a foundation for a united economic science.
The axiomatic approach is much more abstract and does not demand that the concepts used in mathematical economics have any close counterparts in economic reality. The most important thing is that this approach is mathematically reliable, if the axioms are true the approach leads without doubt to true conclusions.
Now, there is the question how the axiomatic approach was transferred to economics? And why it found a fertile ground to grow and flourish in post-war economics ?
A person “responsible” for transmitting axiomatic notion of mathematical rigor to economics
was a French mathematician and economist Gerard Debreu.
Debreu (b. 1921 in France) was awarded the Nobel Prize in Economics in 1983 for his contribution to the mathematical economics.
In 1940s Debreu was a very well trained and talented mathematician who believed that only the axiomatic approach should be identified with “good” mathematics.
In 1950 Debreu joined The Cowles Commission for Research in Economics at the University of Chicago, US, (from 1955 associated with Yale University), a centre founded in 1932 for the advancement of economic theory in its relation to mathematics and statistics. The Cowles commission contributed much to the development of econometrics and mathematical economics and it is considered the most important organization for the history of American economics.
In Cowles Commission Debreu became to reformulate GET in an axiomatic fashion. Because of his activity, axiomatic method quickly became the house doctrine, the basic economic approach, of the Cowles Commission and under the influence of the members of the Commission, it began to spread throughout American graduate education in economic theory, as the members of commission became employed into the major economics departments in America.
In addition, as you know, since in the second part of 20th century, the US has become the leading country in economic research and economics in other parts of the world has developed in accordance with American trends, the axiomatic approach has expanded to Europe and other continents.
Why the axiomatic approach and GET developed in this fashion has became so successful, why it has become the heart of the mainstream economics?
It is not an easy question to answer, but it seems that many economists in 1950s believed that that axiomatic method could promise a neutral and rigorous perspective to settle some contemporary debates and controversies (e.g. between neoclassical economics and Institutionalism, between rival versions of neoclassicism or between Keynesians and non-Keynesians).
Moreover, from the 1940s on the axiomatic approach became a mainstream in American mathematics itself. Its use in economics was therefore justified by applying the only authoritative method of “the queen of the sciences”, that is mathematical science. If this is the only real mathematics, then why use something different in economics, especially if you wanted economics to be a real hard science, similar to natural sciences.
As a digression, I can say that the shortcomings of the axiomatic approach were evident and acknowledged in the discipline of mathematics by the 1970s, and the approach was to a large degree abandoned in mathematics by 1970s.
But similar process is only now coming to economics, that is only recently economists started to doubt in axiomatic method.
OK, so far we have described how historically GET developed in an axiomatic fashion has become mainstream economics in 1950 and later decades. Economists simply assumed that this is the most general economic theory and if developed by the best available mathematical method (axiomatic one), than it could make economics a real, hard, rigorous science.
Axiomatic GET has therefore become the main, the most prestigious research program in economics in the period from 1950s to at least 1980s. There very many efforts to fund other parts of economic science of axiomatic GET.
Even today if you look at the most popular in the US advanced graduate textbook on microeconomics, than GE models cover about one-third of the book and the book is over one thousand pages long. Therefore, still, this is probably the most important part of economic theory.
So what were the greatest achievements of this program, axiomatic GET?
The most famous one is the formal correct proof of the existence of competitive equilibrium. As you remember this is the problem Walras tried to resolve in the late 19th century by counting equations and variables in his model of GE. But his solution was mathematically naïve.
There were many other attempts to provide a proof that the solution to GE model exists - that is that there is a set of prices, which clears all the markets at the same time.
First complete and correct proof was due to Gerard Debreu, of course, and Kenneth Arrow, who in 1950s was another prominent proponent of axiomatic method in economics.
In 1954, they published a paper on the „Existence of an Equilibrium for a Competitive Economy”, in which the proof was provided. It was the great achievement since it established that you can meaningfully speak about market equilibrium and you can develop the GE program further.
The proof of the existence of GE is one lasting achievements of the program, but what about others?
Of course, other important questions in GE framework are the problems of the uniqueness and stability of equilibrium.
The problem whether market equilibrium in a model is unique or there are many equilibria is important, for example in matters of economic policy, since if there are many equlibira it is not easy to predict what equilibrium will be achieved in the end. Therefore, it limits the predictive powers of economic theory. You could not say in a clear way with respect to such a model, what will be the market equilibrium, so it limits the use of economics in practical economic policy.
And the problem of stability of equilibrium is even more important
The stability question for competitive equilibrium is an essential part of the general equilibrium research program. Some have gone so far as to describe the discovery of a universal and globally stable adjustment process to market equilibrium as the `Holy Grail' of general equilibrium theory.
The reason the stability question has this special status is easy to see. Without an argument establishing the existence stable equilibrium prices, equilibrium states, even if they exist and are optimal, lose their appeal.
In fact, if no convincing stability argument can be made then general equilibrium states might just as well not exist, because nothing in the operation of the economy will lead to their establishment. Alternatively, if the economy will deviate from them there is no hope that it will ever return to them - so their existence is of smaller importance.
These are important theoretical problems - let's see how mainstream economics tried to solve them.
In general, we could say that the results achieved about the uniqueness and stability of equilibria emerged to be rather negative.
In many attractive GET models, there are multiple equilibria, and there are many important ones in which there are infinitely many equlibria.
With reference to the problem of stability of equilibria we can argue that all global stability results are very special and relatively unconvincing, often the stability of equilibrium in GET models can only be guaranteed under restrictive and implausible conditions.
In general this important part of GET, as it became known in late 1970s, brought rather negative and pessimistic results.
What about the abovementioned theoretical problem of reduction of other economic theories to GET?
Mainstream economists in the period from 1950s to 1980s had pursed a project of reducing all other important economic theories, and especially macroeconomics to GET. Did they succeed?
In this project mainstream economists wanted to fund macroeconomic theories on the so-called microfundations, that is on the basis of some fundamental axioms from mainstream microeconomics, like the axioms that consumer's preferences are transitive and complete.
Since it was microeconomics, and especially GET, that was the most formal and mathematically correct econmic theory, no sub-field of economics could be said to have an adequate foudation without becoming funded on GET.
In 1960s, 1970s and early 1980s every macroeconomic model was considered suspect without some sort of microfundations in GET - that is every serious macromodel had to be formulated on the basis of microeconomic axioms, like axioms concerning consumer's preferences. In this sense, modern mainstream economics attempted to reduce macroeconomic theory to microeconomic GET.
But as it was proved already in 1970s that these efforts to reduce macrotheory to microeconomic GET were futile. The results which show the impossibility of reduction of macroeconomics to GET are known under the name of Sonnenschein-Mantel-Debreu (SMD) theorem (or theory), after the names of economists who in a series of papers in 1970s provided similar proofs of this impossibility.
And as you can see Gerard Debreu, one of the greatest advocates of and contributors to GET, was among those who proved the failure of GE to provide the basis for a universal, global economic theory.
What is the essence of SMD theorem?
The theorem implies that under standard neoclassical assumptions on the individual consumers, such as transitivity and monotonicity of preferences, so that each agent is characterized by textbook convex indifference curves one can derive market aggregate demand curves for the whole society. However, these market demand curves satisfy only those mathematical conditions that allow you to prove the existence of the market equilibrium. They do not satisfy stronger conditions needed for the proof of uniqueness and stability of the equilibrium at the aggregate, macro level.
In simpler words, in general, those market demand curves can be of almost any shape, not necessarily negatively sloped as suggested by textbooks.
To put it differently, you would have to impose different than standard, very strong, unrealistically strong, restrictions on consumer's preferences to build on the basis of those preferences market demand curves which would be well-behaved, negatively sloped, so that unique and stable equilibrium would be possible.
The conclusion from SMD theorem is that the standard micro model of GET has almost no implications for macrobehavior, formalist GET had reached a dead end - no general results beyond the existence of equilibrium were possible and it is not possible to fund macroeconomic theories on GET.
This is a very pessimistic result for mainstream economics in GE mode. The SMD theorem became well known in economics by the early 1980s and it became increasingly clear to many economists that GET could not fulfil a promise of over 30 years since 1950s.
It is difficult to overstate the importance of SMD result for neoclassical mainstream microeconomic theory. It meant that microeconomics could not yield determined general equilibrium - unique and stable.
It also meant that the project of providing aggregate macroeconomic phenomena with a basis in GE microeconomics had ended. The SMD result had an epoch-ending impact. The former champions, advocates of GET have had to abandon the field. One of the modern economic theorists, in a paper devoted to the problem of oil trade in general equilibrium modelling, wrote: “the near emptiness of GET is a theorem of the theory [of GE]”.
Once the SMD theorem called into question the central status of GET, since the mid 1980s, we can observe a stage of pluralism in microeconomics. The SMD result put an end to neoclassical GET.
Still in textbooks, applications and much of economic practice, GE persists, but other methods of research have appeared in microeconomics since the mid-1980s.
Notably, game theory, the so-called complexity approach and experimental economics began to be more and more popular. These trends were not originated by any significant theoretical or methodological innovations in those currents.
Rather, the relative fall or decline of GET, vacated the dominant position it had enjoyed since 1950s, and these alternative approaches were able to develop and to contribute to issues that the previous theory (GET) could not.
So today, even GE theorists characterize the situation in modern microeconomics, in the last 20 years as a state of moderate pluralism.
Since the mid 1980s, we have the still-continuing wave of pluralism in economic theory, at least in microeconomics, similar to the inter-war pluralism.
The most prominent of the pluralist approaches in micro, after the fall of GE, became game theory.
In early 1980s, as increasing number of economists accepted the power of SMD theorem, game theory seemed to have certain advantages over GE approach.
Game theory dealt with strategic interactions of economic agents, had been previously applied in models of imperfect competition and in 1970s and 1980s there had been a major progress in game theory.
Many new concepts of game theoretic equilibrium, over the standard Nash equilibrium, were developed in the period.
In 1980s, the turn toward game theory gained enormous momentum. Game theory became the most fashionable tool of microeconomists. Somebody said that in 1980s, “the only game in town was game theory” - it became the dominant method used in economic theory.
However, game theory reached beyond the pure theory of economics, transforming many fields, for example industrial organization and international economics. In particular, industrial organization, that is the theory of market structures (describing perfect competition, monopoly, imperfect competition, and oligopoly) was thoroughly changed - all those models were reformulated in a variety of forms in a game-theoretic language.
In short, game theory dominated microeconomics and its applied fields in 1980s.
Unfortunately, as it emerged quickly game theory suffered from several foundational problems.
A key problem for game theory was the very concept of rationality in a game theoretic setting.
The primary difficulty here is that the common solutions of game theory like Nash equilibrium concept are associated with extremely implausible, unrealistic assumptions. These are the so-called common knowledge assumptions.
Common knowledge means that each player knows each player's rationality, strategies, and the structure of the game.
Simply, quite a big body of knowledge is assumed in game theory,
The idea of strategic play, which assumes that players guess actions of other players in the face of lack of knowledge, is rather not coherent with common knowledge assumptions.
In addition, it has been shown that game theoretical assumptions and models of rationality are incompatible with experimental evidence - people in reality often do not behave as game theory suggests.
In response to those problems in standard game theory, in which it is assumed that agents maximize their expected utility, a new current of game theory was originated from about the year of 1990. So it is a very recent approach, it is called evolutionary game theory.
In this approach, economic agents are rule following rather than maximizing.
This means that agents base their actions on a specific rule of behavior - it does not have to be a rule of maximization of utility. It can be a rule of limited maximization, or it can be assumed that agents care about the utility of other agents or it can be assumed that agents not even try to be rational (in the sense of maximizing behavior).
In evolutionary game theory you seek for equilibria states, in which only the fittest agents survive, the population evolves in such a way that more successful types of agents replace less successful ones - just like in the biological theory of evolution.
Evolutionary game theory shows how far contemporary economic theory ahs come from its neoclassical origins, where rationally maximizing behavior of individuals was thought to be necessary for a good economic model.
It is no longer necessary in modern economics that the agents be rational, they can follow any rule of behavior, which is successful in the long run evolution of population.
Another example of pluralism in modern microeconomics, following the demise, the fall of GET, is the quite impressive recent rise of experimental economics - a field in which economists try to conduct scientific experiments to verify some theories, just like scientists in natural sciences (physics for example).
This field also shows how much modern economics differ from neoclassical economics of the pre-war period.
Experimental economics has become a well-established field in economics in the mid 1980s; previously papers in experimental economics were published mainly in psychological journals. This field could not flourish during the dominance of GET from 1950s to 1980s, when deductive and axiomatic methods were considered the most fruitful for economists.
Experimental method is by the nature inductive, that is, it is based on the observation of several examples of certain events or phenomena, and formulating more general statements on the basis of these observations.
From 1950s to 1980s, this method was considered as scientifically weak in economics, and many experimental results were simply ignored. For example, since 1950s it was very well known in experimental research that people's preferences are often not transitive.
Preferences are transitive if the following condition is fulfilled, if agent prefers A to B, and B to C, than he or she prefers A to C.
Still this experimental evidence was ignored, because the transitivity of preferences was assumed in GE framework as axiom, which was not subject to empirical testing.
However, more recently, since the mid 1980s, following the GET's troubles with SMD theorem, we see a different situation, a situation in which experimental results are treated seriously as scientific.
Experimental results helped recently to remove the postulates of rational, maximizing behavior from the center of modern economic theory, in favor of evolutionary game arguments of rule following of agents.
Therefore, we have discussed briefly three examples of pluralism of modern microeconomic theory: standard rational choice game theory, evolutionary game theory and experimental game theory.
These three examples of modern pluralism, following the fall of GET theory, depart in different ways from the GE program. Rational, standard game theory is interested in strategic interactions of economic agents (while in standard GE framework agents do not take into account other agent's actions).
Evolutionary game theory deviates from GE, focusing on not necessarily rational actions.
Experimental economics favors inductive approach over deductive, axiomatic approach of GE.
They all contribute to the present state of a wide variety of approaches to modern microeconomic theory - there are also some other approaches today which we did not discussed, for example the so called complexity economics, which relies on some methods of physics, or computational economics, which is based on computational methods taken from computer sciences.
Therefore, recent modern microeconomics, theory of the last 20 years, is not monolithic, but rather quite pluralistic.
Some conclusions about modern microeconomics.
Modern, post-war microeconomic theory has undergone several transformations. From interwar pluralism it became a monolithic mainstream economics of the 1950s, 60s and 70s decades. This process, the formalist revolution, aimed at funding all economic theory on GET developed in axiomatic fashion.
But GET has exhibited rather the lack of progress, especially in the context of Sonnenschein-Mantel-Debreu result. In 1980s, it became obvious that you can not prove much in GET beside the demonstration of the existence of GE.
Especially, the idea of basing macroeconomics on GE microfundations was challenged and abandoned.
The more general idea of creating any universal economic theory, which would unite micro- and macro theory was abandoned in favor of pluralist view. The formalist revolution ended in mid 1980s.
As GET began to have problems, in 1980s rational choice game theory came to be the most fashionable tool in economic theory, but the implausible assumptions about the common knowledge turned the attention of many economists to evolutionary game theory and experimental economics, even though those currents reject, respectively, the long-held economic assumption of rational maximization of agents and formalist axiomatic style of reasoning.
So today's microeconomics is a plural environment.
From inter-war pluralism, through post-war mainstream monolithic economics, in the recent 20 years economics returned to moderate state of pluralism.
There are many unsolved problems in contemporary microeconomics, in various versions of game theory, and in experimental economics, and still GET plays an important role in modern economics, although it is generally recognized that it is plagued with the problems of determination of equilibria, described in SMD theorem.
So today's microeconomics is very diverse and its future evolution is uncertain, but there is one constant factor in all those developments of since 1950s. This is the persistence of the mathematical mode of reasoning. All the postwar microeconomic theory we described, had been stated mathematically.
Even experimental economics, which is more empirical and inductive in nature, in nearly always about testing some mathematical model.
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