No abstract

This article reconstructs Franco Modigliani’s and Herbert Simon’s close collaboration over the 1950s on implementation of a decision theory under uncertainty that partly contributed to the genesis of behavioral economics and rational expectations theory. Their collaboration reveals how the shared identification of uncertainty as a major problem, their similar interpretation of rationality as the ability to select and use relevant information, and their embrace of certain methodological norms for the construction of economic theory (that it should be empirically grounded and mathematically sophisticated) enabled productive cross-fertilization between the two approaches in their nascent forms. In the beginning Modigliani’s forward-looking procedure (with its focus on foresight) and Simon’s backward-looking model (with its focus on learning) were conceived as complementary rather than antithetical for the development of a concrete decision rule under the hypothesis of incomplete information. The article also discusses Modigliani’s and Emile Grunberg’s contribution to rational expectations, concentrating on the paper they wrote but never published, and Modigliani’s early reaction to John Muth’s rational expectations theory.

In the article I examine how model builders from the academia and from the Federal Reserve Board confronted the Phillips curve in the construction and subsequent modifications of the Federal Reserve, MIT, and University of Pennsylvania macroeconometric model. It is argued that academic debates on Milton Friedman’s and Edmund Phelps’s accelerationist hypothesis, and the evolution of the macroeconomics discipline, did not affect the model-building agenda at the Division of Research and Statistics at the Board over the 1970s and 1980s.

No abstract

The paper discusses Modigliani, Brumberg, and Ando’s life cycle hypothesis and its difficult acceptance in Italy over the 1960s and 1970s. The increasing attention to the effects of income redistribution on consumption coupled with the strong influence that post-Keynesian economics exercised on the theoretical and political debate of that time led to a widespread preference of Kaldor’s theory as over the life cycle as the best representation of Italian savings behavior.