Microfoundations: Fringe on a Rug

Here's a rug:

Raina Traditional Blue, from At Home

Here's economics:

The pattern in the center is macro.
The fringe at the edges, that's micro.

Here's Ray Dalio's picture of the economy:

See the fringe? The reasons we have, as buyers and sellers, for the choices we make.

The fringe is important. To us as buyers and sellers, and just as people, the reasons we do things are often extremely important to us. This is something behavioral economics wants to understand, the fringe, the reasons for our behavior, so that they can change our behavior. I don't like that. I don't like to be manipulated.

Sometimes, somebody's reasons are important to somebody else, as when one person tells a story about another person's reason for doing what they do, to make that person look bad. I don't like that, either. The reasons we have for doing the things we do, they're personal, and they're important. And you should never have to tell anybody what your reasons are. They're yours. Tell em to look at the results.

You should never listen to somebody talk about somebody else's motives. Nobody should ever make up stories about other people's motives, and as a general rule people should never try to change other people's behavior. Doing so is creepy at best. Except, you know, you have to listen to your wife.

Our reasons for the choices we make are personal and important -- to us. That's the fringe on the rug.

Once we make our choices and decide to act, what happens in the economy is described by the middle part of Dalio's picture: The arrows pointing toward the center, and the relation between "Total $" and "Total Q". This is where transactions occur. This is where the economy exists.

This is where macro exists.

Nothing could be more irrelevant to macro, than micro. Nothing could be less relevant. You can even see it in a rug.