Social interactions and macroeconomics

This essay discusses how the growing literature on social interactions can be used in macroeconomics. This new literature represents a systematic effort to introduce sociological reasoning into economic contexts. Theoretical and empirical analyses of social interactions have proven valuable in understanding a range of aspects of individual decisionmaking and have been useful in understanding aggregate phenomena such as inequality. We describe the basic ideas underlying social interactions models and speculate on how macroeconomics might benefit from incorporating this perspective. William A. Brock Department of Economics University of Wisconsin 1180 Observatory Drive Madison, WI 53706-1393 wbrock@ssc.wisc.edu Steven N. Durlauf Department of Economics University of Wisconsin 1180 Observatory Drive Madison, WI 53706-1393 sdurlauf@ssc.wisc.edu Political economy...finds the laws underlying a mass of contingent occurrences. It is an interesting spectacle to observe here how all of the interconnections have repercussions on others, how the particular spheres fall into groups, influence others, and are helped or hindered by these. This interaction, which at first sight seems incredible since everything seems to depend on the arbitrary will of the individual, is particularly worthy of note... G. W. F. Hegel, Elements of the Philosophy of Right

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