Behavioral and Experimental Macroeconomics and Policy Analysis: A Complex Systems Approach

This survey discusses behavioral and experimental macroeconomics, emphasizing a complex systems perspective. The economy consists of boundedly rational heterogeneous agents who do not fully understand their environment use simple decision heuristics. Central to our is the question under which conditions macro-system interacting may or coordinate on equilibrium outcome. A general finding that positive expectations feedback (strategic complementarity)—where optimistic (pessimistic) can cause boom (bust)—coordination failures are quite common. then rather unstable, persistent aggregate fluctuations arise strongly amplified by coordination trend-following behavior leading (almost-)self-fulfilling equilibria. Heterogeneous heuristics switching models match this observed micro macro surprisingly well. We also discuss policy implications failure perfectly outcome how help manage self-organization process economic system. (JEL C63, C90, D91, E12, E71, G12)