Criticism Of Neoclassical Economics
Introduction
Neoclassical economics is an economic school on thought initially developed around the late 1800s, where concepts such as making choices at the margin and utility began to develop. Several definitions exist, but the most basic assumption of this school of thought is that participants in markets make choices rationally. Additionally, it is also assumed that mathematical models may be used to make predictions about the economy. In contrast, bounded rationality asserts that constraints of time, information, and general limitations of the mind prevent people from behaving rationally in a market. If the latter theory is true, this presents serious implications regarding how relevant neoclassical economics is at predicting or even describing
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Without looking at any data or any research, intuitively it already seems like a far-out concept that most consumers spend their money rationally. Now to compound on this intuitive idea, it is convenient to underline one the main posits of bounded rationality, which asserts that despite intelligence, there are simply too many constraints that prevent humans from making totally or even nearly rational decisions. In fact, one of the most consistent criticisms of neoclassical theory is that it is based on the behavioral theory of rationality, where there does not appear to be much justification for the assumption that participants in a market behave rationally. Upon saying this, it must be highlighted that there can be an argument for a population tending towards rationality on an aggregate level, but based on historical data or research, can this argument be …show more content…
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