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

MAURIZIO CASERTAdefinition seems to be that of endogenous change. The finalimplication of this line of reasoning is that the notion of provisionalequilibrium is strengthened. When equilibrium is correctlyassociated with a process of learning, equilibrium by its very naturebecomes provisional.One may wonder at this point whether there is any differencebetween provisional equilibrium and Hahn’s equilibrium. Bothequilibria are disrupted by a change in the theory entertained and inboth cases no disequilibrium dynamics are spelled out. There is afundamental difference, however. Hahns equilibrium presupposesthat agents form theories that, however simple, are comprehensive,that is, theories which result from the processing of all messagesreceived from the economy and nature. Provisional equilibrium, onthe other hand, does not rule out that a subset of messages, althoughperceived, are not processed or are just partially processed. Thismeans that a subset of messages is provisionally, as it were, put onone side, while a theory is formed on the basis of another subset ofmessages and acted upon. However, the processing of the othersubset does not necessarily stop, so that a new theory may result atsome point in time. The new theory may or may not be compatiblewith the set of propositions the old theory consists of; as a result itmay or it may not include the material covered by the old theory.It should become clear then that while Hahn’s equilibrium can bedisrupted when the theory is sufficiently and systematically falsified,this is not a necessary requirement for provisional equilibrium to bedisrupted. Provisional equilibrium can be disrupted because thetheory that results from the ongoing process of learning is notcompatible with the old one, regardless of whether the old theory isfalsified or not. Therefore, the notions of equilibrium anddisequilibrium do not coincide in the two different stories. WhileHahn’s equilibrium is not compatible with learning, provisionalequilibrium is; while Hahn’s disequilibrium originates fromsystematic falsification of theories, disruption of provisionalequilibrium does not have to originate from that.The important implication of this difference is that whereasdisruption of Hahn’s equilibrium represents a discontinuity in theprocess of learning that does not proceed smoothly, disruption ofprovisional equilibrium does not alter the fundamental unity of theprocess of learning. It is this fundamental unity that lies at the heartof provisional equilibrium and serves as its main distinguishingpoint. But when it comes to economic analysis, is there anypossibility of discriminating between the two notions? In other112