ABSTRACT
In 1952 Lee Back asked Modigliani to join the Graduate School of Industrial Administration of the Carnegie Institute of Technology (now Carnegie Mellon) he had just set up with the help of Herbert Simon and William Cooper. The graduate school was characterized by a strong interdisciplinary and empirical approach to the study of firm behavior with the aim of establishing a modern management science. As Modigliani himself acknowledged, the almost ten years he spent at Carnegie were his most productive. They, however, also represent a departure from his research on Keynesian economics that he had begun with his PhD dissertation. Modigliani worked in the 1950s on this issue writing lengthy notes on monetary economics, that remained unpublished, and later summarized in the 1963 article. This chapter deals with Modigliani’s work on firms’ economic planning under uncertainty that places Modigliani’s definition of rational behavior in between an optimization and a satisficing approach, and Modigliani and Grumberg’s papers on perfect foresight that anticipated Muth’s rational expectations hypothesis.
