On Nov 12, 2009, at 7:07 PM, SA wrote:
> Miles Jackson wrote:
>
>> We know that the basic assumptions held by neo-classical economists
>> are wrong. One simple example: the notion that people are utility
>> maximizers has been refuted in study after study in decades of
>> psychological research. It's bizarre to me that economists
>> continue to cling to fundamental premises that have been
>> empirically discredited.
>
> Have you heard of something called behavioral economics? It's an
> entire field of research - an especially fashionable field within
> the discipline right now - whose entire premise is that the utility-
> maximization assumption is wrong. It then shows why it's wrong and
> tries to develop the implications.
I'm sorry, but this misrepresents neoclassical (Marshallian) economics. Welfare maximization (that a consumer acts in accordance with her subjective preferences under her immediate budgetary constraints), while self-evident is not the key assumption. The key assumptions are consistency (that if A is preferred to B once it is always preferable to B) and transitivity (that if A is preferable to B, and B is preferable to C, then A is preferable to C). Neither is at all self-evident, and it is easy to construct situations in which neither is the case. That is the basis of behavioral economics's critique of neoclassical theories of consumer behavior. But the neoclassicists have an easy response: unless the underlying social causes shaping mass consumer behavior have shifted, individual or situational deviations from the governing assumptions will on average have no consistent direction, will be statistically random. Therefore the *mean* values characterizing behavior will always tend toward those specified by the assumptions. And that is all that is needed by the Marshallian theory.
Shane Mage
> This cosmos did none of gods or men make, but it
> always was and is and shall be: an everlasting fire,
> kindling in measures and going out in measures."
>
> Herakleitos of Ephesos