Micro-foundations and Methodology: A Complexity-Based Reconceptualization of the Debate

In a number of very influential publications, Epstein and Hoover (among other authors) have recently argued that a thoroughly micro-foundationalist approach towards economics is unconvincing for metaphysical reasons. However, as we show in this article, this metaphysical/social ontological approach to the debate fails to resolve the status of micro-foundations in the practice of economic modelling. To overcome this, we argue that endogenizing a model-that is, providing micro-foundations for it-correlates with making that model more complex. Specifically, we show that models with more micro-foundations tend to have more parameters or variables. This matters, as there are well-established methodological reasons for preferring models with fewer parameters or variables-ceteris paribus. We therefore conclude that, from a practice-based point of view, micro-foundations are only defensible to the extent that they significantly improve the ability of the relevant model to fit the data of interest. In this way, we arrive at a practice-based, methodological reconceptualization of the debate surrounding the need for micro-foundations in economics.