@Bumby, you had a thoughtful question. I'm not sure where you're comment went, so replying at top level:
>> Why? Because people make rational decisions across the distribution.
> Do you mean that the average consensus converges on a rational decision? From an economists perspective, where does that assumption tend to break down and what are the best mechanisms for mitigating it?
To clarify, on average people make microeconomics decisions that move a macroeconomic distributions in a measurable (and sometimes predictable) fashion.
Connecting microeconomics foundations to macro models also allows for structural estimation of unobservable parameters, but that's really a tangent.
Your question is getting more at behavioral economics/mechanism design (e.g bounded rationality), on which topic I am not deeply studied. The aphorism "the market is rational on average" seems related, perhaps?
>> Why? Because people make rational decisions across the distribution.
> Do you mean that the average consensus converges on a rational decision? From an economists perspective, where does that assumption tend to break down and what are the best mechanisms for mitigating it?
To clarify, on average people make microeconomics decisions that move a macroeconomic distributions in a measurable (and sometimes predictable) fashion.
Connecting microeconomics foundations to macro models also allows for structural estimation of unobservable parameters, but that's really a tangent.
Your question is getting more at behavioral economics/mechanism design (e.g bounded rationality), on which topic I am not deeply studied. The aphorism "the market is rational on average" seems related, perhaps?