Chapter 1: Introduction to The Behavioral Economics of John Maynard Keynes
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Economic theories and narratives frame our thinking and imaginations of economic opportunities. They affect what we deem reasonable and what we discard as illusionary, impossible, or even crazy. Keynes's revolutionary theory opened the horizon of thinking beyond the unique optimal equilibrium of the neoclassical model allowing for nonoptimal equilibria, which may require policies for welfare improvements. His theory was confined to macroeconomics, but his microeconomics based on observations of the economic behavior of workers, consumers, and entrepreneurs in a monetary economy is the foundation of his macroeconomic conclusions. Keynes' microfoundations are at odds with the neoclassical model's axioms and were largely ignored or declared as flawed or lay-person economics. However, rigorous research in Behavioral Economics and neurology substantiates Keynes' microfoundations. At least along 24 dimensions of individual behavior and the functioning of markets are Keynes' theory and Behavioral Economics distinct from the neoclassical model's assumptions.