Subjectivism and Economic Analysis: Essays in memory of Ludwig ...

ENDOGENOUS CHANGEHahn’s notion of equilibriumHahn’s notion of equilibrium is well known: ‘an economy is inequilibrium when it generates messages which do not cause agentsto change the theories which they hold or the policies which theypursue’ (Hahn 1984:59). According to Hahn, an agent’s theory isthe result of the processing of the messages from the economy andnature received by the agent up to the date t. An agent’s policy is amapping from messages to acts. It is in the nature of the equilibriumposition that the agents are not learning in equilibrium, whichmeans that the agents’ theory is independent of the date t. It is alsoin the nature of the equilibrium position that policies are notchanging, which requires that agents are not learning and that theirobjectives are not changing. 5As long as agents are learning, the economy is not inequilibrium. The economy is generating messages that do notcause agents to maintain their theories. 6 Hahn contents himselfwith the hypothesis that theories are abandoned when they are‘sufficiently and systematically falsified’. Any such message fromthe economy will prompt a reconsideration of the theoriesentertained that far and a change in regime. How the new theoryand hence the new equilibrium are reached is not known.However, if a ‘higher-level’ theory of the learning process wereavailable, such a change in regime would not cause anydiscontinuity, as it would represent an equilibrium behaviour ofthe economy being studied. If such a theory were available,analysts and agents alike would know how to discard a theory andput another one in its place. 7Strictly speaking the process whereby theories are rejected andreplaced does not imply, on the part of agents, any learning inHahn’s sense. Therefore, equilibrium and learning carry on beingtwo incompatible ideas. The argument put forward here is thatequilibrium and learning can indeed coexist. What this argumentis built on is the equal treatment of economic agents and economicanalysts. 8 Let us see what is a typical attitude of economicanalysts. Responding to an objection on the axiomatic methodHahn says:Axioms, like special hypotheses, are there to specialise. It isnot that they are divorced from experience or observation butrather that they mark the stage beyond which one does notseek to explain. The axiom that firms maximise some function109