The Problem

As in physics, Euler equations in economics are derived from  optimization and describe dynamics, but in economics, variables of interest are controlled by forward-looking agents, so that future contingencies typically have a central role in the equations and thus in the dynamics of these variables.

That’s from Jonathan Parker’s enter on Euler Equations in the New Palgrave Dictionary of Economics. It’s as nice a summary as any on why what we do is so hard.

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