The following is an interesting online debate about the assumption of rationality in economics:
http://crookedtimber.org/2011/09/24/the-poverty-of-rationality/#more-21757
http://newmonetarism.blogspot.com/2011/08/john-quiggin.html
For what it's worth my sympathies are with Quiggin. Williamson makes the following extraordinary statement:
"Like the "efficient markets hypothesis," DSGE has no implications, and therefore can't be wrong. Indeed DSGE encompasses essentially all of modern macroeconomics. Which of our models is not dynamic, with uncertainty (and therefore stochastic), and with some equilibrium concept."
If DSGE genuinely has no implications and 'cannot be wrong' then it is not a valid scientific programme. Only falsifiable hypotheses can be considered scientific so Williamson's statement by definition rules DSGE out as a scientific programme.
Moreover this is an extraordinarily broad definition. Most Keynesian income-expenditure models are (1) dynamic (2) contain some degree of uncertainty and (3) have an equilibrium concept. However, no-one on either side of the debate would consider referring to these as DSGE.
