Economic Growth and Change in a Material World
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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