Scientific Discovery and Macroeconomic Outcomes

New York University, New York NY

Investigators

Abstract

This award funds research that develops a new modeling framework for incorporating the discovery of new ideas (by firms, consumers, and other economic decision makers) into a class of models that are widely used in modern economics. These models assume that individual actors use Bayesian inference to adjust their expectations over time. In this model of learning, over time the agents observe the world, compare that to their list of possible explanations, and eliminate possibilities that do not explain what they see while also adjusting their beliefs about the remaining possibilities. There is no idea here of discovering entirely new possibilities that were completely unknown at the start. The PI will generalize the Bayesian method to allow for this kind of discovery in a logically consistant way. He will determine the class of dynamic models that can be analyzed in the proposed new framework. The project has transformative potential for macroeconomic theory, because the results may yield a useful new method for thinking about how new scientific and technological discoveries affect macroeconomic behavior. Broader impacts include the potential to improve our ability to consider the role of scientific discovery on economic outcomes.