Macroeconomic models play an important role in guiding fiscal and monetary policy. At the core of many of these models is the assumption of a single representative, rational agent. We develop a model that loosens these constraints and explicitly models the social dynamics of households embedded in a social network. In some circumstances this leads to endogenously oscillating economic output resembling business cycles, where households spontaneously become rich or poor. Nonetheless, the production of the economy is close to optimal, even though each household acts myopically. This presents an alternative approach to macroeconomics without using rationality assumptions on households.
Yuki M. Asano, Jakob J. Kolb, Jobst Heitzig, J. Doyne Farmer, 'Emergent inequality and business cycles in a simple behavioral macroeconomic model', Proceedings of the National Academy of Sciences Jul 2021, 118 (27) e2025721118; DOI: 10.1073/pnas.2025721118