Knowledge, Beliefs and Economics

Knowledge, Beliefs and Economics

Edited by Richard Arena and Agnès Festré

This book surveys how economists engage with knowledge and beliefs in various fields of economic analysis, such as general equilibrium theory, decision theory, game theory, experimental economics, evolutionary theory of the firm, financial markets and the history of economic thought.

Chapter 1: Introduction

Richard Arena and Agnès Festré

Subjects: economics and finance, economic psychology


Richard Arena and Agnès Festré The role played by the notion of belief in modern economics is somewhat paradoxical. On the one hand, it is clearly and increasingly gaining prominence in most fields of contemporary analysis, such as decision theory, price theory, finance, game theory, information theory, sunspot theory, economics of the mind and organization theory. On the other hand, this popularity stands in stark contrast to the lack of precision that characterizes the concept of belief within economics. The paradox could be easily dismissed by arguing that belief shares the fate of many other concepts encountered in modern economic analysis: the more they are used, the less precise they are. The reasons for this tendency are certainly complex and we shall not attempt to tackle them here. Suffice it to say that a more general and systematic reflection on the role of beliefs in economics still needs to be carried out, especially given that by doing so our knowledge of many economic phenomena and their interactive mechanisms would certainly increase. It is by no mere accident that beliefs have come to occupy an increasingly prominent place in modern economics. This is the result of the influence of three current strains of modern economic thought, all affecting our representation of economic agents and of economic forms of rationality. The progressive decline of the General Equilibrium research programme substantially changed the idea of economic equilibrium that prevailed among economists during the first two decades following the Second...