Rationality – What? Misconceptions of Neoclassical and Behavioral Economics

24 Pages Posted: 6 Mar 2017 Last revised: 12 Mar 2017

See all articles by Mario J. Rizzo

Mario J. Rizzo

New York University (NYU) - Department of Economics

Date Written: March 1, 2017

Abstract

Both behavioral and neoclassical economists maintain a concept of strict rationality that is exceptionally narrow. Neoclassicists use it as a tool both to explain what agents actually do and as a prescriptive framework. Behavioralists do not believe it adequately explains actual behavior but that it is still a good prescriptive framework. My view is that whatever the technical virtues of strict, narrow rationality in providing a foundation for useful economics constructs, it is completely inadequate as a prescriptive standard. The appropriate concept of rationality for evaluation purposes must be “liberal” or broad, reflecting the complexities of human decisionmaking. Behavioral economists are blind to much of this at a normative-prescriptive level. So their critique of market or other outcomes is impoverished.

Keywords: Irrationality, Biases, Ecological Rationality, Welfare

JEL Classification: D01, D03, B53, B40

Suggested Citation

Rizzo, Mario J., Rationality – What? Misconceptions of Neoclassical and Behavioral Economics (March 1, 2017). Available at SSRN: https://ssrn.com/abstract=2927443 or http://dx.doi.org/10.2139/ssrn.2927443

Mario J. Rizzo (Contact Author)

New York University (NYU) - Department of Economics ( email )

269 Mercer Street, 7th Floor
New York, NY 10011
United States
212-998-8932 (Phone)
212-995-4186 (Fax)

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