The Conceptual Resilience of the Atomistic Individual in Mainstream Economic Rationality

Drakopoulos, Stavros A. (2022): The Conceptual Resilience of the Atomistic Individual in Mainstream Economic Rationality.

Abstract

Τhe idea that social influences and social interactions play a central role on individual economic decisions has had a long presence in the history of economics. With the emergence of marginalism, this idea went into background and the concept of atomistic individual became established in mainstream economic rationality. Starting in the 1970’s, there were some attempts to reintroduce non-atomistic preferences in mainstream microeconomic theory in the form of social interactions, interdependent preferences, keeping up with the Joneses, social identity, social preferences, and status concerns. Social preferences have started to have a growing impact among mainstream microeconomics with the advent of behavioral economics, but still they are not in the hard core of the standard theory of choice. The paper argues that atomistic preferences are still prevalent, especially in the form of the assumption of representative agent. It also focuses on the role of methodological individualism and on the theoretical implications of relaxing the assumption of atomistic individual, as main explanations of the resilience of the mainstream economic rationality.

• Item Type: MPRA Paper
• Language: English
• Keywords: Economic Rationality; Individual Preferences; Methodological Individualism, Representative Agent
• Subjects: B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B20 - General; B - History of Economic Thought, Methodology, and Heterodox Approaches > B4 - Economic Methodology > B40 - General; D - Microeconomics > D1 - Household Behavior and Family Economics > D10 - General; D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving

References

Ackerman, F. (2002) ‘Flaws in the foundation: Consumer behaviour and general equilibrium theory’, in R. Fullbrook, (ed.), Intersubjectivity in Economics, London: Routledge, pp. 56-70.

Adams, J. S. (1963) ‘Towards an understanding of inequity’, Journal of Abnormal and Social Psychology, 67: 422-436.

Akerlof, G. (1980) ‘A theory of social custom, of which unemployment may be one consequence’, Quarterly Journal of Economics, 94: 749-75.

Akerlof, G. and Kranton, R. (2000) ‘Economics and identity’, Quarterly Journal of Economics, 115: 715-753.

Akerlof, G. and Kranton, R. (2005) ‘Identity and the economics of organizations’, Journal of Economic Perspectives, 19: 9-32.

Akerlof, G. and Kranton, R. (2010) Identity Economics, Princeton: Princeton University Press.

Andreoni, J. (1990) ‘Impure altruism and donations to public goods: A theory of warm-glow giving’, The Economic Journal, 100: 464-477.

Angner, E. (2019) ‘We're all behavioral economists now’, Journal of Economic Methodology, 26:3, 195-207.

Arnsperger, C. and Varoufakis, Y. (2006) ‘What Is Neoclassical Economics? The three axioms responsible for its theoretical oeuvre, practical irrelevance and, thus, discursive power’, Panoeconomicus, 1: 5-18.

Arrow, K. (1994) ‘Methodological Individualism and Social Knowledge’, American Economic Review (Papers and Proceedings), 84(2): 1-9.

Bagwell, L. and Bernheim, D. (1996) ‘Veblen effects in a theory of conspicuous consumption’, American Economic Review, 86: 349-373.

Bartolini, S., Bilancini, E., and Sarracino, F. (2013) ‘Predicting the trend of well-being in Germany: how much do comparisons, adaptation and sociability matter?’, Social Indicators Research, 114: 169–191.

Becker, G. (1974) ‘A theory of social interactions’, Journal of Political Economy, 82: 1063-93.

Becker, G. (1976) The Economic Approach of Human Behaviour, Chicago: University of Chicago Press.

Becker, G. and Murphy, K. (2000) Social Economics: Market Behavior in a Social Environment, Cambridge, MA: Belknap‐Harvard University Press.

Binmore, K. (1999) ‘Why experiment in economics? Economic Journal’, 109: F16–F24.

Blanchard, O. (2016) ‘Do DSGE models have a future?’ Policy Brief, 16-11: 1-4. Washington: Peterson Institute for International Economics.

Blanchflower, D. and Oswald, A. (2004) ‘Well-being over time in Britain and the USA’, Journal of Public Economics, 88: 1359-86.

Blomquist, S. (1993) ‘Interdependent behavior and the effect of taxes’ Journal of Public Economics, 51, 211-218.

Bowles, S. and Gintis, H. (2002) ‘Social capital and community governance’, Economic Journal, 112: 419–436.

Camerer, C. (2003) Behavioral Game Theory, Princeton: Princeton University Press

Camerer, C. and Loewenstein, G. (2004) ‘Behavioral economics: Past, present, future’, in C. Camerer, G. Loewenstein, and M. Rabin, M. (eds.), Advances in Behavioral Economics, Princeton: Princeton University Press, pp.3-52.

Charness, G. and Rabin, M. (2002) ‘Understanding social preferences with simple tests’, Quarterly Journal of Economics, 117: 817–869.

Chetty, R. (2015) ‘Behavioral economics and public policy: A pragmatic perspective’, American Economic Review, 105(5): 1–33

Clark, A. and Oswald, A. (1996) ‘Satisfaction and comparison income’, Journal of Public Economics, 61: 359-381.

Clark, A. and Oswald, A. (1998) ‘Comparison-concave utility and following behaviour in social and economic settings’, Journal of Public Economics, 70: 133-55.

Claveau, F. (2009) ‘Interdependent preferences and policy stances in mainstream economics’, Erasmus Journal for Philosophy and Economics, 2: 1-28.

Crawford, I. and De Rock, B. (2014) ‘Empirical revealed preference’, Annual Review of Economics, vol. 6, 503–24

Dasgupta, P. and Goyal, S. (2019) ‘Narrow Identities’, Journal of Institutional and Theoretical Economics, 175 (3): 395–419.

Davis, J. (2010) Individuals and Identity in Economics, Cambridge: Cambridge University Press.

Davis, J. (2014) ‘Pluralism and Anti-Pluralism in Economics: The Atomistic Individual and Religious Fundamentalism’, Review of Political Economy, 26 (4): 495-502.

Davis, J. (2021) ‘Deepening and Widening Social Identity Analysis in Economics’, Erasmus Journal for Philosophy and Economics, 14(2):

Denis, A. (2016) ‘Microfoundations’, Review of Political Economy, 28(1),134-152.

Drakopoulos, S. (2016) Comparisons in Economic Thought: Economic Interdependency Reconsidered. London and New York: Routledge.

Duarte, P. G. and Lima, G. T. (eds.) (2014) Microfoundations Reconsidered: The Relationship of Micro and Macroeconomics in Historical Perspective, Cheltenham, Edward Elgar.

Duesenberry, J.S. (1949) Income, Saving and the Theory of Consumer Behaviour, Cambridge: Harvard University Press.

Fehr, E. and Schmidt, K. (1999) ‘A theory of fairness, competition and cooperation’, Quarterly Journal of Economics, 114: 817-868.

Fehr, E. and Fischbacher, U. (2002) ‘Why Social Preferences Matter - The Impact of Non-Selfish Motives on Competition, Cooperation and Incentives’, The Economic Journal, 112(478): C1-C33.

Fehr, E., Fischbacher, U. and Kosfeld, M. (2005) ‘Neuroeconomic foundations of trust and social preferences: Initial evidence’, American Economic Review, 95(2): 346-351.

Festinger, L. (1954) ‘A theory of social comparison processes’, Human Relations, 3: 117-140.

Frank, R. (2008) ‘Should public policy respond to positional externalities?’, Journal of Public Economics, 92: 1777–1786.

Frantz, R. (2020) The Beginnings of Behavioral Economics: Katona, Simon, and Leibenstein's X efficiency theory. London: Academic Press.

Goodfriend, M. and King, R. (1997) The new neoclassical synthesis and the role of monetary policy, pp. 231–96 in NBER Macroeconomics Annual 1997, Bernanke, B. and Rotemberg, J. (eds.), Cambridge, MA, MIT Press

Goodwin C. (2016) ‘Economics and Psychology: Why the Great Divide?’, History of Political Economy, 48, suppl. 1, 71-169.

Granovetter, M. (1985) ‘Economic action, social structure, and embeddedness’, American Journal of Sociology, 91: 481–510.

Guala, F. (2008) ‘History of experimental economics’, in S. Durlauf, and L. Blume, (eds), The New Palgrave Dictionary of Economics (2nd edn), Basingstoke: Nature Publishing Group, pp. 152–156.

Gul, F., and Pesendorfer, W. (2008) ‘The case for mindless economics’, in A. Caplin, & A. Schotter (Eds.), The foundations of positive and normative economics: A handbook (pp. 42–69). Oxford University Press.

Hamermesh, D. (1975) ‘Interdependence in the labour market’, Economica, 42: 421-29.

Hamermesh, D. (1977) ‘Economic aspects of job satisfaction’, in O. Ashenfelter and W. Oates (eds.), Essays in Labor Market Analysis, Toronto: John Wiley and Son, pp.53-72.

Hands, D. W. (2016) ‘The individual and the market: Paul Samuelson on (homothetic) Santa Claus economics’, European Journal of the History of Economic Thought, vol. 23: 425–52

Hands, W. (2017) ‘Conundrums of the representative agent’, Cambridge Journal of Economics, 41: 1685–1704

Hayakawa, H. and Venieris, Y. (1977) ‘Consumer interdependence via reference groups’, Journal of Political Economy, 85: 599-615.

Heffetz, O. and Frank, R. (2011) ‘Preferences for status: evidence and economic implications’, in J. Benhabib, A. Bisin, and M. Jackson (eds), Handbook of Social Economics, vol.1A, Amsterdam: Elsevier, pp. 69–91.

Heise, A. (2019) ‘The resilience of modern neoclassical economics – a case study in the light of Ludwik Fleck’s ‘harmony of deception’, The Journal of Philosophical Economics,13(1): 1-18.

Heukelom, F. (2014) Behavioral Economics: A History. Cambridge: Cambridge University Press.

Hodgson, G. (2007) ‘Meanings of methodological individualism’, Journal of Economic Methodology, 14(2): 211-226,

Homans, G. (1961) Social Behaviour: Its Elementary Forms, New York: Harcourt Brace.

Hoover, K. D. (2012) ‘Microfoundational programs’, in Microfoundations Reconsidered: The Relationship of Micro and Macroeconomics in Historical Perspective, Duarte, P. G. and Lima, G. T. (eds.), Cheltenham, Edward Elgar pp. 19–61

Jackson, W. (2013) ‘The Desocializing of Economic Theory’, International Journal of Social Economics, 40(9): 809-825

Kahneman, D. (2003) ‘Maps of Bounded Rationality: Psychology for Behavioral Economics’, American Economic Review, 93(5):1449–75.

Kahneman, D. and Tversky, A. (1979) ‘Prospect theory: An analysis of decision under risk’, Econometrica, 47: 263–291.

Kahneman, D., Knetsch, J. and Thaler, R. (1986) ‘Fairness and the assumptions of economics’, Journal of Business, 59: S285-S300.

Kao, Y.-F. and K. V. Velupillai (2015) ‘Behavioral Economics: Classical and Modern’, The European Journal of the History of Economic Thought, 22(2): 236–271.

Kirman, A. P. (1992) ‘Whom or what does the representative agent represent?’, Journal of Economic Perspectives, 6: 117–36

Kirman, A. (2006) ‘Demand theory and general equilibrium: from observation to introspection, a journey down the wrong road’, History of Political Economy, 33: 246–280.

Kirman, A. and Teschl, M. (2006) ‘Searching for identity in the capability space’, Journal of Economic Methodology, 13: 299-325.

Konow, J. (2010) “Mixed feelings: Theories of and evidence on giving,” Journal of Public Economics, 94: 279-297.

Kurz, H. (2019) ‘Classical Political Economy’, Munich Social Science Review, New Series, 2: 17-51.

Layard, R. (1980) ‘Human satisfactions and public policy’, Economic Journal, 90: 737-750.

Layard, R. (2006) ‘Happiness and public policy: A challenge to the profession’, Economic Journal, 116(510): C24-C33.

Lecouteux, G. (2013) ‘Reconciling normative and behavioural economics’, Cahier de Recherche, 2013-09, hal-00819763.

Levine, D. (2012) Is behavioral economics doomed? The ordinary versus the extraordinary. Cambridge: Open Book Publishers.

Levitt, S. D., and List, J. A. (2008) ‘Homo economicus evolves’, Science, 319(5865): 909–910.

McKenzie, R. (2010) Predictably rational? In search of defenses for rational behavior in economics. Dordrecht: Springer.

Mason, R. (1995) ‘Interpersonal effects on consumer demand in economic theory and marketing thought, 1890-1950’, Journal of Economic Issues, 29: 871-81.

Muellbauer, J. (2016) ‘Macroeconomics and Consumption’, Economics Series Working Papers Paper, No. 811, University of Oxford, Department of Economics, Oxford, UK.

Ng, Y-K. (2003) ‘From preference to happiness: Towards a more complete welfare economics’, Social Choice and Welfare, 20: 307-350.

Ng, Y-K. and Wang J. (1993) ‘Relative income, aspiration, environmental quality, individual and political myopia: Why may the rat-race for material growth be welfare reducing?’, Mathematical Social Sciences, 26: 3–23.

Pesendorfer, W. (2006) ‘Behavioral Economics Comes of Age: A Review Essay on "Advances in Behavioral Economics"’, Journal of Economic Literature, 44: 712-721.

Pollak, R. A. (1970) ‘Habit formation and dynamic demand functions’, Journal of Political Economy, 78: 745-763.

Pollak R. A. (1976) ‘Interdependent Preferences’, American Economic Review, 66: 745-63.

Pollak R. A. (1977) ‘Price dependent preferences’, American Economic Review, 67: 64-75.

Powdthavee, N. (2007) ‘Economics of Happiness: A Review of Literature and Applications’, Chulalongkorn Journal of Economics, 19(1): 51-73.

Rabin, M. (1998) ‘Psychology and economics‘, Journal of Economic Literature, 36: 11-46.

Ross, D. (2012) ‘Τhe economic agent: Not human, but important‘, in U. Maki (ed.), Philosophy of Economics, Amsterdam: North-Holland, pp.691-735.

Ross, D. (2014) Philosophy of Economics. New York: Palgrave Macmillan.

Rothschild, K. (2008) ‘Economic imperialism‘, Analyse und Kritik, 30: 723-733.

Samuelson, P. (1948) ‘Consumption theory in terms of revealed preference’, Economica New Series, 15(60): 243–253.

Sen, A. (2005) ‘Why exactly is commitment important for rationality’, Economics and Philosophy, 21: 5-14.

Sent, E-M. (2004) ‘Behavioral economics: how psychology made its (limited) way back into economics’, History of Political Economy, 36: 735-760.

Simon, H. (1955) ‘A behavioural model of rational choice’, Quarterly Journal of Economics, 69: 99-118.

Sobel, J. (2005) ‘Interdependent preferences and reciprocity’, Journal of Economic Literature, XLIII: 392–436.

Stigler, G. and Becker, G. (1977) ‘De gustibus non est disputandum’, The American Economic Review, 67: 76-90.

Stiglitz, J. (2018) ‘Where modern macroeconomics went wrong’, Oxford Review of Economic Policy, 34(1-2): 70–106.

Tipoe, E., Adams, A. and Crawford, I. (2021) ‘Revealed preference analysis and bounded rationality’, Oxford Economic Papers, 74(2): 313-332.

Truyts, T. (2010) ‘Social status in economic theory’, Journal of Economic Surveys, 24: 137–169.

Tversky, A. and D. Kahneman (1986) ‘Rational Choice and the Framing of Decisions’, Journal of Business, 59/4: S251–S278.

Yalcintas, A. (2016) Intellectual Path Dependence: Why Economists Do Not Reject Refuted Theories. London: Routledge.