The macroeconomic profession is well aware of the shortcomings of the current state of macroeconomic modeling, and is generally dissatisfied with the models it uses, as documented, for example, in Kirman (1992b) or Leijonhufvud (1993, 1995). The need to improve macroeconomic models is certainly felt widely. To cite a few examples, we do not have a satisfactory explanation of why some macroeconomic variables move sluggishly, or how policy actions affect segments of the economy differently, and we lack adequate tools for treating dynamic adjustment behavior of microeconomic units in the presence of externalities of the kind termed “social influence” by Becker (1990) and others, or in models with multiple equilibria.

Leijohnhufvud (1995) argues that the Rationality Postulate has such a strong hold on economists that, although they are aware of the notion of the Invisible Hand, a self-regulating order emerging in a complex system from the interactions of many microeconomic agents without this being part of their intentions, they are generally blind to hierarchical complexity and some of its consequences and averse to learning from other fields in which emergent properties and distributive information processing are also studied.

This book is concerned with modeling a large collection of not necessarily homogeneous microeconomic agents or units in a stochastic and dynamic framework.