“Microfoundations,” Janssen, 2006

A brief review of the history of microfoundations and the methodological success (or failure) of macroeconomics to incorporate microfoundations. Notes succinctly the predominant neoclassical synthesis hypothesis for the existence of unemployment under rationality (wages are sticky downward for some reason, labor markets suffer from imperfect competition, efficiency wages lead to pay above market clearing level, and multiple equilibiria from coordination failure). In particular, Janssen points out the problems in justifying rational expectations from individual rationality alone, drawing on the game theoretic concept on rationalizability (Bernheim 1984).

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=901163

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