Why lay social representations of the economy should count in economics

Abstract

We consider the potentially major role of lay economic representations in economic theoretical modelling. Departing both from the rational expectation hypothesis, that supposes a maximal cognitive fit between agents’ representations and the variables in the model , and from an approach in terms of psychological biases that would externally affect agents’representation of their environment, we consider that lay representations have essential features that make them potentially valuable tools for the reconciliation of normative and practical perspectives in macroeconomics. By reviewing a series of studies in the sub-field of the psychology of lay economics, we first emphasize the collective and pragmatically-oriented features of these lay economic representations. We thereby uncover the major role of language and meaning, seemingly non-economic human institutions, in laying down the basis for economic understanding. Secondly, we directly address the question of the internal logic and cognitive features of these representations and uncover/in uncovering typical circular causal reasoning in lay macroeconomics. We finally re-assess the question of the maximal fit between ordinary economic psychology and predictive economic modelling.