Edited by Richard Arena and Agnès Festré
Chapter 2: Expectations, Uncertainty and Beliefs in Marshallian and Post-Marshallian Analyses of Economic Systems
2. Expectations, uncertainty and beliefs in Marshallian and post-Marshallian analyses of economic systems Brian J. Loasby 2.1 MAKING SENSE Economies are complex systems, composed of many levels of partially interacting subsystems; and so they are necessarily beyond the detailed comprehension of any single brain within that system (Hayek 1952, p. 185). In seeking to understand them we are therefore obliged to resort to simpliﬁcations, omissions, aggregations of heterogenous elements which are treated as homogenous, and formulations that are false but manageable. We have to make sense of the world by creating representations; and it is a representation, not the presumed reality, that is the subject of both our theoretical manipulations and the decision processes of economic agents. In this chapter we shall consider the work of a group of economists who were particularly concerned that their analysis should adequately represent the economic systems and economic processes – including the cognitive processes of economic agents – that they were trying to understand. It is reasonable to try to adjust the particular combination of simpliﬁcations, shortcuts and admitted falsehoods that constitute a representation to the particular purposes or problems that we have in mind. Moreover, continued reliance on a particular kind of representation is necessary for progress in any scientiﬁc or productive endeavour, and this representation must be shared by those contributing to this endeavour, as Thomas Kuhn (1962, 1970) pointed out. However, it is essential not to confuse any representation with the truth that it purports to represent; the partial...
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