Concerns have been raised that the "individual choice model," which forms the basis of macroeconomics, does not sufficiently reflect reality.
Larry Samuelson, a professor at Yale University and chairman of the World Economic Science Congress (ESWC), emphasized during the keynote speech on the last day of the ESWC held at COEX in Gangnam, Seoul, on the 22nd, that the model's four key elements need to be examined, stating, "More sophisticated research is needed."
Professor Samuelson divided the components of the individual choice model into "individual preferences," "feasible range of actual choices," "probabilistic beliefs about the future," and "methods of information updating."
He noted, "All four are imperfect and inadequate for explaining realistic decision-making," adding that "there is a need for a new theory to explain the interactions and transactions formed by differing beliefs."
Traditional economics assumes that people share the same events and probabilities. It also posits that when individuals encounter new information, they adhere to Bayes' Rule, which reflects prior probabilities with execution data and repeatedly calculates to find an accurate position.
However, in actual reality, each investor, policymaker, and citizen utilizes different information and models. The basis for judgment varies among individuals, including financial statements, news, networks, and technical patterns.
Humans sometimes learn in the wrong direction due to biases and value judgments. Professor Samuelson explained, "Learning is not simply a probability update but a process of deciding how to divide the world and which model to adopt."
Professor Samuelson stressed the need for active follow-up research centered on the four elements of the individual choice model. He stated, "Economics can more accurately reflect reality when it encompasses diverse beliefs and learning processes," adding that "this will also positively influence policy analysis and model development."