References and further reading

Allais, M. (1953), ‘Le comportment de l’homme rationnel devant le risque: critique des postulats et axiomes de l’ecole americaine’, Econometrica, 21, 503-46

Augier, M. (2003), ‘The making of a behavioural economist: Herbert A.

Bourgine, P. and B. Walliser (eds) (1992), Economics and Cognitive Science, Oxford: Pergamon Press.

Camerer, C.F. (1999), ‘Behavioral economics’, CSWEP Newsletter, Winter, accessed 15 June 2012 at www. cswep.org/camerer.html.

Camerer, C.F. and G. Loewenstein (2004), ‘Behavioral economics: past, present, future’, in C.F. Camerer, G. Loewenstein and M. Rabin (eds), Advances in Behavioral Economics, Princeton, NJ: Princeton University Press, pp. 3-51.

Earl, P.E. (ed.) (1988), Behavioural Economics, Aldershot, UK and Brookfield, VT, USA: Edward Elgar.

Egidi, M. and S. Rizzello (eds) (2003), Cognitive Economics, vols 1 and 2, Cheltenham, UK and Northampton, MA, USA: Edward Elgar.

Gilad, B. and S. Kaish (eds) (1986), Handbook of Behavioral Economics, vols A and B, London: JAI Press.

Gilad, B., S. Kaish and P.D. Loeb (1984), ‘From economic behavior to behavioral economics: the behavioral uprising in economics’, Journal of Behavioral Economics, 13 (1), 1-22.

Hayek, F.A. (1937), ‘Economics and knowledge’, Economica, 4 (13), 96-105.

Hayek, F.A. (1945), ‘The use of knowledge in society’, American Economic Review, 35 (4), 519-30.

Hayek, F.A. (1952), The Sensory Order. An Inquiry into the Foundations of Theoretical Psychology, London, Routledge & Kegan Paul.

Heukelom, F. (2014), Behavioral Economics: A History, Cambridge: Cambridge University Press.

Kahneman, D. and A. Tversky (1979), ‘Prospect theory: an analysis of decision under risk’, Econometrica, 47 (2), 263-91.

Kao, Y.-F. and K.V. Velupillai (2015), ‘Behavioural economics: classical and modern’, European Journal of the History of Economic Thought, 22 (2), 236-71.

Katona, G. (1951), Psychological Analysis of Economic Behavior, New York: McGraw-Hill.

Katona, G. (1980), Essays on Behavioral Economics, Ann Arbor, MI: University of Michigan Institute for Social Research.

Loasby, B.J. (2004), ‘Hayek theory of the mind’, in R. Koppl (ed.), Advances in Austrian Economics, vol. 7, Evolutionary Psychology and Economic Theory, Amsterdam: JAI, pp. 101-34.

McCain, R. (1992), A Framework for Cognitive Economics, Westport, CT: Praeger.

North, D.C. (1996), ‘Economics and cognitive science’, accessed 13 September 2011 at http://econwpa.repec. org∕eps∕eh∕papers∕9612∕9612002.pdf.

Paquet, G. (1998), ‘Evolutionary cognitive economics’, Information Economics and Policy, 10 (3), 343-53.

Rizzello, S. (1997), L’economia della mente, Rome and Bari: Laterza, English trans. 1999, The Economics of the Mind, Cheltenham, UK and Northampton, MA, USA: Edward Elgar.

Rizzello, S. (2004), ‘Knowledge as path-dependence process’, Journal of Bioeconomics, 6 (3), 255-74.

Sent, E.-M. (2004), ‘Behavioral economics: how psychology made its (limited) way back into economics’, History of Political Economy, 36 (4), 735-60.

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Simon, H.A. (1987), ‘Behavioral economics’, in J. Eatwell, M. Milgate and P. Newman (eds), The New Palgrave: A Dictionary of Economics, vol. 1, London: Macmillan, pp. 221-5.

Simon, H.A. (1989), ‘The state of economic science’, in W. Sichel (ed.), The State of Economic Science: Views of Six Nobel Laureates, Cambridge, MA: W.E.

Tomer, J.F. (2007), ‘What is behavioral economics?’, Journal of Socio-Economics, 36 (3), 463-79.

Viale, R. (ed.) (1997), Cognitive Economics, Milan: La Rosa Editrice.

Walliser, B. (2008), Cognitive Economics, Berlin and Heidelberg: Springer-Verlag.

Walliser, B. and R. Topol (2007), ‘Introduction’, in R. Topol and B. Walliser, Cognitive Economics: New Trends, Amsterdam: Elsevier, pp. 1-12.

For a long time business cycles and economic growth were considered to be strongly interconnected. During the interwar period, pioneering work in macroeconomics, by leading economists, offered deep theoretical reflections defining the fundamental pur­poses of the field, and elaborating different analytical frameworks and methodologies.

After the Second World War, when macroeconomics began increasingly to exploit mathematical tools, the analysis of growth cycles dynamics appeared a real and a mathematical challenge. The difficulty faced by economists in their various attempts to investigate the growth cycles interactions led to business cycles and growth theories being treated as independent research fields. On the one hand, business cycles theories tried to explain de-trended data movements; on the other hand, growth theory analysed the existence and uniqueness of a stable, long-run equilibrium. This dichotomy was strengthened by the then dominant monetary view, which insisted that monetary policy mattered only in the short run, and had no impact in the long run. However, it would be misleading to assume that all economists believed that business cycles and growth were independent phenomena.

As pointed out by Solow, this dichotomy is not founded on any serious theoretical argument but rather is the logical consequence of the discipline’s shortcomings which should be challenged: “The problem of combining long-run and short-run macro­economics has still not been solved” (Solow 1988: 310). The great majority of economists consider this (artificial) division not as a scientific choice but rather as a pedagogical dichotomy.

Although this entry does not pretend to provide an exhaustive survey of the literature, it offers a comprehensive overview of the various approaches which were developed at different times, in order to provide a joint growth-cycles analysis. We identify the pio­neering economists and summarize the more recent literature, focusing on those busi­ness cycles models that are based on the distinction between shocks and propagation. In what follows, we identify particular episodes in the development of macroeconomics when there was a convergence between analytical growth frameworks and business cycles analysis. These episodes are delimited mainly by Harrod’s (1939) seminal essay on dynamics, Brock and Mirman’s (1972) stochastic growth model, and the revival in the mid-1980s of growth theories, which opened new perspectives for growth-cycles analysis (see Stadler 1990).

The entry is organized as follows. First, we discuss theories, such as Schumpeter’s theory of economic development in which cycle and trend are strongly intertwined. Next, we deal with the fundamental questions and methodological debates addressed by the pioneering authors in the field. We present Harrod’s project and the reactions to his 1939 seminal paper, which strongly influenced the development of macroeconomics along two independent paths. The two types of instability in his model were at the origin of two types of research programmes: those involving economists who identified Harrod’s “line of steady advance” as a growth path and saw its stabilization as a way to explain regular growth as it was observed after the Second World War, and those who saw the instabil­ity principle as an opportunity to develop a business cycles approach which contained instability within reasonable boundaries.

In the second part of the entry, we analyse the theories that emerged from the modern growth theory starting with Brock and Mirman’s (1972) seminal contribution. Their stochastic approach to growth combined with Lucas’s (1972) counter-revolutionary approach to business cycles as equilibrium phenomena led to the emergence of real busi­ness cycles (RBC) models which eliminated the dichotomy between growth and cycles. We also discuss the potential of endogenous growth models to capture the impact of short-run fluctuations on (long-run) growth. The entry concludes with some comments on recent research agendas promoted by alternative approaches to the issue under consideration.