Walrasian economics in retrospect

Two basic tenets of the Walrasian model, behavior based on self-interested exogenous preferences and complete and costless contracting have recently c ome under critical scrutiny. First, social norms and psychological disposit ions extending beyond the selfish motives of Homo economicus may have an im portant bearing on outcomes, even in competitive markets. Second, market ou tcomes depend on strategic interactions in which power in the political sen se is exercised. It follows that economics must become more behavioral and more institutional. We can return to these themes of the classical traditio n, now equipped with the more powerful mathematical tools developed over th e past century.