Criticisms of Neoclassical Economics - Learning in Economics: Do Markets Heal?

Learning in Economics: Do Markets Heal?

The assumption that conduct is prompt and rational is in all cases a fiction. But it proves to be sufficiently near to reality, if things have had time to hammer logic into men. Where this has happened, and within the limits in which it has happened, one may rest content with this fiction and build theories upon it. —Joseph Schumpeter (1934, 80; first published 1911)

However recent studies have shown that empirical evidence on this subject is mixed. There is plenty of empirical evidence that "anomalous" behavior can survive for a long time in real markets such as in market "bubbles" and market "herding" (see AVERY & ZEMSKY, 1998). Evidence from the laboratory shows that some anomalies are overcome by learning in real life market environments, while others are not: “The data suggest the market glass is both half-full of deviations and half-empty because some deviations were drained away by learning“ (CAMERER, 1995, 675).

Recently empirical evidence has indicated that markets produce the types of learning assumed in the traditional neoclassical Economics only under very limited ideal conditions - which are rarely met in real-life - namely perfect competition and free information (see SUNDER, 1995).

It may take an extended period of time for markets to eventually converge to an equilibrium, if at all. Even under ideal conditions especially if the economic actors' initial beliefs are not coordinated.