Vilfredo Pareto's Theory of Action: An Alternative to Behavioral Economics

Abstract

In recent years the term behavioral economics has arisen in consequence of the growing effort of a significant set of economists to import psychological methods and findings into economics. This body of work issues strong challenges to the use economists have made of rationality in economics. Unfortunately, this recent work illustrates unnecessary and misguided creativity. Vilfredo Pareto explored the same analytical territory nearly a century ago, and to superior analytical effect. Pareto recognized that the substantive content of action depends on the environment in which action occurs. Some environments elicit logical action while other environments elicit non-logical action. Both types of action are species of rationality, only they are recognizably different. In this paper we explain why Pareto’s approach to human action points toward a superior analytical agenda than does the present orientation of behavioral economics.

Keywords: Vilfredo Pareto, logical vs. non-logical action, rationality, behavioral economics

JEL Classification: B31, B41, D11