Introduction: The Social and Behavioural Turn in Macroeconomics

Along with the rest of economics, macroeconomics has been subject to growing criticism from various quarters concerning its excessive mathematical rigour and implausible assumptions. Some critics even talk of a “crisis of (macro)economic theory”. Dialogue with neighbouring disciplines (psychology, sociology, history) has largely been lost, the argument continues. Social and behavioural macroeconomics draws on behavioural economics and the economics of social interactions (including Economic Sociology) to rectify such weaknesses and offer more realistic foundations for the sub-discipline. This book reviews, synthesises, and extends the extant work on social and behavioural macroeconomics. The first chapter sets the scene for the rest of the book. It offers a brief historical overview of macroeconomics, tracing the origins of many of the socio-behavioural insights in the discipline to Keynes (among others). But such insights were progressively lost among subsequent generations of theorists, when the increasing mathematical sophistication was pursued at the cost of realism. The nail in the coffin has been put by the New Classicals and their micro-foundations imperative and the Real Business Cycles theoretical offshoot (and the more modern variant of DSGE modelling). Reviewing more modern work, this chapter argues that socio-behavioural insights and perspectives arguably hold the promise to resolve several seeming paradoxes or unappealing propositions in macroeconomics (such as the “five neutrality results” of impeccable logic but at odds with data and experience); to shed light on income distribution, growth, labour supply, or price stickiness; and to improve the optimal design of macroeconomic policies. More fundamentally, they also hold the promise to shed light on and reshape socially inefficient behaviour such as that leading to global warming, financial crises, and “24/7” societies.