By Amna Silim – The failure to predict or explain the financial collapse and recession has put neoclassical economic thinking in the dock, but such an interrogation is long overdue. Sharp fluctuations in economic growth are just one of the real-world phenomena that traditional economics is poor at understanding. From actual human behaviour through to constant innovation, there is much that traditional economic thinking struggles to explain.
This conventional model can be challenged on four fundamental fronts: the tendency to equilibrium, exogenous shocks, individual rationality and systemic consistency.
In the real world, economies are not static and geared towards equilibrium; they are dynamic and in constant flux. This dynamism is endogenous; it originates within the system, not from exogenous shocks. Consumer preferences are not formed by individuals acting solely on their own but are the result of a complex process that includes observing and interacting with other consumers.
Economic agents do not have a fixed set of preferences based on rational assessment; they are subject to whims and to mimicking the behavior of other agents. As a result, the nature of the economic system transforms over time. more> https://goo.gl/HX3RjA