We introduce a new section in this blog, each week we will present a hard question you can ask your Professor of a certain discipline.
Today one of the hardest question you can ask a professor (preferably a Macro prof) is:
Whom or What Does the Representative Individual Represent?
Because we want our readers to be informed with strong foundations behind every claim the fundamental article is Alan Kirman’s “Whom or What Does the Representative Individual Represent?” http://www.umass.edu/preferen/Class%20Material/Readings%20in%20Market%20Dynamics/Kirman%20JEP%201992.pdf
Roughly we can list some important points:
-The Economy is populated by millions heterogenous of individuals and firms, but paradoxically macroeconomic models don’t take this into account.They prefer to use a “representative” standard utility maximizing individual, thus failing to depict with reality.
-there is no plausible formal justification for the assumption that the aggregate of individuals, even maximizers,
acts itself like an individual maximizer.
– The reaction of the representative to some change in a parameter of the original model-a change in government policy for example-may not be the same as the aggregate reaction of the individuals he “represents.”
-the preferences of the representative individual cannot legitimately be used to decide whether one economic
situation is “better” than another.
-Empirical testing of the representative agent is counter-intuitive.
Much much much more on Alan Kirman’s Paper.
Learn the leasons on the Paper and go prepared to your next class to ask your professor a Hard Question!