microfoundations

Microfoundations are the lowest-level explanations of macro-level phenomena in social science, focusing on the behavior and interactions of individual agents—such as households, firms, or voters—and the rules, incentives, and institutions that govern them. The goal is to show how macro relationships, equilibria, or structural parameters emerge from micro-level decisions, rather than being assumed as primitive or ad hoc.

In economics, microfoundations became central in the 20th century as scholars sought to ground aggregate relationships in models of optimizing behavior, bounded rationality, and expectations. The Lucas critique emphasized that policy evaluation should account for changes in agents' behavior when policy parameters change, underscoring the need for sound microfoundations. Methods include intertemporal optimization, rational expectations, and representative-agent or heterogeneous-agent frameworks; increasingly, agent-based models simulate decentralized interactions without assuming a single representative agent.

Critics argue that insisting on microfoundations can be costly, unrealistic, or unnecessary for understanding certain macro regularities, and that macro models with well-fitting empirical content can be valuable even if micro-level mechanisms are abstract or simplified.

The term also appears in sociology, political science, and other fields, where researchers seek to explain macro-structural outcomes by examining micro-level actions and interactions, norms, and institutions.

Overall, microfoundations refer to the methodological project of connecting macro-level theory with the concrete behavior and interactions of individuals or firms, to improve explanation, prediction, and policy relevance.