Socio-Economics, Macroeconomics, and Finance

This concluding chapter broadens the discussion to consider insights from socio-economics and economic sociology, whose main thrust is to challenge the methodological individualism dominant in neoclassical (macro)economics, based on an atomised, under-socialised individual. We begin with a brief historical review of the relationship between economics and neighbouring social disciplines such as economic sociology. We also review insights from and socio-biology, which tend to refute the antagonistic spirit and selfishness implicit in “homo economicus”. “Socio-economics” has also explored the nature of human cooperation and reciprocity. Further themes explored at length are “identity” (drawing on the new economics of identity) and “social capital”. Economic sociology has explored the “embeddedness” of individual behaviour into social institutions and structures, and “micro–macro interactions”; some of the themes in that literature are explored next. Many of these interactions result in Nash equilibria with behaviour quite distinct from individual behaviour considered on its own. The implications of these insights are discussed with reference to financial markets and the recent turmoil there. Behavioural explanations involving “irrational exuberance” are considered; in various ways, they all refute the “Efficient Markets Hypothesis” and challenge “laissez-faire” policy prescriptions. Finally, recent analyses on “narratives” are discussed; to return to our earlier themes, they help the boundedly rational individuals, i.e. all of us, make sense of a complex reality. A growing literature is pointing towards their relevance in economics, finance, and beyond.