Game theory, institutional economics, economics - study and teaching


We contend that economics is in need of a new paradigm. When taught in the traditional neoclassical construct, economics is not appealing to many students, particularly those taking economics to satisfy general education requirements. This, in turn, may explain why economic literacy in the U.S. is trending downward. Our approach uses game theory to teach economics by juxtaposing neoclassical and institutional economic paradigms so that students not only better understand the neoclassical model, but also are exposed to alternative approaches in economics. To better understand neoclassical models, we incorporate three institutional criticisms of neoclassical economics: (1) the assumption that all individuals are perfectly rational, (2) the propensity to create theories using static models that take as given (and usually ignore) important, exogenous factors influencing decision-making processes, and (3) an emphasis on modeling techniques and less of an emphasis on what is actually being modeled and how it is being modeled. We also integrate institutional and neoclassical economics by illustrating how history, culture, and emotion interact with the traditional neoclassical principles to inform economic decision-making via simple (evolutionary) games that can be used in the classroom.

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