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Revealed Preference Theory, Rationality, and Neoclassical Economics: Science or Ideology
Abstract
Revealed Preference Theory (Samuelson 1938) is an attempt to establish
economic theory as a genuine empirical science by ridding it of nonempirical
psychological concepts. Samuelson’s goal was to rid economic
theory of the last vestiges of utility analysis. Samuelson structured his
theory on a set of preference axioms that would explain the choices of
economic agents. But revealed preference theory is rendered problematic
because decision making is structured therein on preferences that
conform to an implicit postulate of rationality. Matters are further
compounded by the fact that despite theoretical support offered by
theorists such as Varian, the empirical results demonstrate that agent
decision making is often at variance with the formal axioms of revealed
preference. The issue is not solved even when decision making is
construed within the context of imperfect, that is, ‘bounded rationality’.
I argue that neoclassical economic theory is best understood as a form
of rule utilitarianism. In this regard, neoclassical economics is
unavoidably value-laden and should be construed as an aspect of
normative welfare economics. Thus efforts by theorists such as Vanberg
to salvage the assumed scientific credentials of neoclassical economics
by construing the postulate of rationality in evolutionary terms are
seen as problematic. Neoclassical economic theory is to be viewed
essentially then as an ideology that presents a particular theory of
human behaviour. It is this theory that serves as the foundations of
modern capitalism and its practise as neoliberal economics. This is the
anthropological question then: is such an ideology socially optimal for
humans as social animals in terms of efficiency and equity?
economic theory as a genuine empirical science by ridding it of nonempirical
psychological concepts. Samuelson’s goal was to rid economic
theory of the last vestiges of utility analysis. Samuelson structured his
theory on a set of preference axioms that would explain the choices of
economic agents. But revealed preference theory is rendered problematic
because decision making is structured therein on preferences that
conform to an implicit postulate of rationality. Matters are further
compounded by the fact that despite theoretical support offered by
theorists such as Varian, the empirical results demonstrate that agent
decision making is often at variance with the formal axioms of revealed
preference. The issue is not solved even when decision making is
construed within the context of imperfect, that is, ‘bounded rationality’.
I argue that neoclassical economic theory is best understood as a form
of rule utilitarianism. In this regard, neoclassical economics is
unavoidably value-laden and should be construed as an aspect of
normative welfare economics. Thus efforts by theorists such as Vanberg
to salvage the assumed scientific credentials of neoclassical economics
by construing the postulate of rationality in evolutionary terms are
seen as problematic. Neoclassical economic theory is to be viewed
essentially then as an ideology that presents a particular theory of
human behaviour. It is this theory that serves as the foundations of
modern capitalism and its practise as neoliberal economics. This is the
anthropological question then: is such an ideology socially optimal for
humans as social animals in terms of efficiency and equity?
