On the Reappraisal of Microeconomics

On the Reappraisal of Microeconomics

Economic Growth and Change in a Material World

Robert U. Ayres and Katalin Martinás

The conventional utility-based approach to microeconomics is now nearly a century old and although frequently criticised, it has yet to be replaced. On the Reappraisal of Microeconomics offers an alternative approach that overcomes most of the objections to orthodox theory, whilst offering some unique additional advantages.

Chapter 1: Models of Human Behavior

Robert U. Ayres and Katalin Martinás

Subjects: economics and finance, evolutionary economics, environment, ecological economics

Extract

Microeconomics deals with economic behavior at the level of individuals and firms. Consequently, it impinges on the domain of behavioral science and psychology. Yet, behavioral science is fundamentally empirical and experimental in nature, whereas microeconomics has largely neglected experimentation, preferring to imitate mathematics by deriving theories from axiomatic foundations. (The award of the 2002 Nobel Prize in economics to two experimentalists with an interest in behavior, Daniel Kahneman and Vernon Smith, may signal a welcome shift in orientation.) Be that as it may, the bulk of microeconomic literature up to now is modelbased. A well-known summary of models of human behavior identifies five different ‘pure’ models that have been influential among different groups (Jensen and Meckling 1994). While the list is not necessarily definitive, it is worth recapitulating briefly, as follows: 1. 2. 3. 4. 5. The Resourceful, Evaluative, Maximizing Model (REMM) The neoclassical economic (Money Maximizing) model The sociological (Social Victim) model The psychological (Hierarchy of Needs) model The political (Perfect Agent) model REMM is certainly the most general of the five, and though listed first, we consider it last. The second (economic) model is a reduced version of REMM, in which many elements of wealth included by REMM are neglected for analytic simplicity. (In practice, only money income or monetary wealth is maximized.) In practice, the neoclassical economic model also makes other assumptions that are useful for creating elegant theoretical models but which are significant departures from reality. We discuss the standard neoclassical...

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