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Two interpretations of the rational choice theory and the relevance of behavioral critique

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  • Marek Hudik

Abstract

I compare two interpretations of the rational choice theory: decision-theoretic and price-theoretic. The former takes the assumption of utility maximization as a literal description of a decision procedure. The latter considers it as a modeling device used to explain changes/variability of behavior on an aggregate level. According to the price-theoretic interpretation, these changes/variability are explained by constraints (“prices†) rather than differences in intrinsic characteristics between human populations (“tastes†). While the decision-theoretic interpretation of rationality represents a possible foundation of the price-theoretic interpretation of rationality, I argue that it is not its only possible foundation. I then show that critiques raised by behavioral economics apply to the decision-theoretic interpretation and much less so to the price-theoretic one. From the perspective of the price theory, behavioral and rational choice models are predominantly complementary. Price-theoretic interpretation helps to explain why the rational choice theory continues to play an important role in economics, even after the behavioral revolution. JEL codes: D01, D03, B41, A10

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  • Marek Hudik, 2019. "Two interpretations of the rational choice theory and the relevance of behavioral critique," Rationality and Society, , vol. 31(4), pages 464-489, November.
    • Handle: RePEc:sae:ratsoc:v:31:y:2019:i:4:p:464-489
    DOI: 10.1177/1043463119869007
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    More about this item

    Keywords

    Behavioral economics; decision theory; Marshallians; price theory; rational choice theory; reductionism; Walrasians;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • A10 - General Economics and Teaching - - General Economics - - - General

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