Economic Models and Foundations

What is the proper level from which to build an economic model?

How do you measure the goodness of a model? There is a longstanding scientific tradition that establishes these criteria:

  • Accuracy
  • Repeatability
  • Simplicity

Any model is a simplification of reality.

Proposition: models that are build using very basic microeconomic foundations (rational expectation models) suck more than models that are less constrained.