Despite considerable evidence that economic agents’ behavior exhibits reflexivity in a variety of important ways, and despite increasing recognition by many economists that patterns of path-dependent or self-reinforcing economic activity can occur locally and economy-wide, little has been done to systematically build the reflexivity concept into the theory of the economic agent where it arguably needs to be developed to adequately explain these phenomena. Indeed, the mainstream economic agent conception seriously limits reflexive economic behavior, as agents can only act on given objectives or preferences, and never revise them as a result of interaction with other agents. In contrast, valuable foundations for an analysis of reflexive economic behavior exist in both Keynesian theory and the agent-based modeling approach. This project develops a theory of reflexive economic agents and uses this analysis to explain both (a) innovator agent behavior in a general theory of innovation, and (b) agent behavior in such phenomena as bubbles, cascades and other forms of self-reinforcing economic cycles that are inconsistent with DSGE/rational expectations macroeconomics.
Reflexivity and the Theory of Economic Agents