Central problems with MAINSTREAM ECONOMICS Essay

Central problems with MAINSTREAM ECONOMICS - Essay Example There are various assumptions that are related to mainstream economics. One of them is the rational choice theory where individuals continually seek for the most cost effective means of achieving their desired goals with less reflection on the worthiness of the desired goal. The basic idea in here is individuals trying to maximize their benefits while at the same time reducing their costs. People decide on how they ought to act by making comparison of the resulting costs and benefits of their courses of action. Thus, the society in question develops a pattern of behavior in relation to these choices made. Another assumption is that of the representative agent. This refers to atypical decision maker of a given type for instance the typical firm or consumer. The notion behind this is that it is much easier to consider one typical decision maker rather than analyzing many of these different decisions (Nadeau 2009). However, economists ignore the representative agent when the differences occurring between individuals are central to the arising central point. The other assumption is that of rational expectation where the prediction of the future made by an agent of all economically relevant variables are not systematically wrong and the fact that all errors made are random. This shows that the expectations of the agents are the true statistical expected values. Much of the modeling of this modern economics explores the notion that other complicating factors have on various models. Here, individuals are viewed as units with a similar goal, which they are capable of maximizing through their rational behavior. The only difference arises in the specific objective geared towards maximization where individuals tend to maximize on their utility and firms tend to maximize on profits. There also exists a difference in the process of maximization