RATIONALITY OF HUMAN BEHAVIOR IN ECONOMICS: CLASSICAL AND NEOCLASSICAL APPROACHES

Author
, Doctor of Sciences (Economics), Professor, Professor of Economics Department, Lviv, prospekt Svobody, 18

In heading

 Economic theory;

Signed print

 22.05.2018

Issues number

 2018 - № 2 (33)

Page

 11-25

Type of articles

 Scientific article

Code UDK

 330.101:330.83

ISSN print

 2411-5584

Abstract

 Problem setting. Due to the instability of Ukrainian economy’ development during last decade the role of scientifically based recommendations for the sustainable growth attaining is permanently increased. The efficiency of forecasts grounded on economic models to a great extent depends on the reasonability of the assumptions that lay in their basis. One of the key problems in this process concerns human behavior modeling.
Recent research and publications analysis. Different facets of the rationality of human behavior are considered in numerous studies. During two last decades, the progress of bounded rationality theories caused the renaissance of interest in this field. Still, the adherents of neoclassical approach find out persuasive arguments in favor of unbounded rationality in different contexts.
Paper objective. The purpose of this article is to trace the evolution of rational human behavior interpretation within classical and neoclassical traditions.
Paper main body. According to Nobel Prize winner K. Arrow, «economic theory, since it has been systematic, has been based on some notion of rationality.» Therefore it seems a proper idea to start with «The Wealth of Nations.» A. Smith started out the systematic analysis of the behavior of individuals who pursue their self-interests under competition. Since that time the interpretation of individual rationality as self-interests pursuing was laid down in the center of classical (and later – neoclassical) approach. At the end of XIX century to describe a hypothetical individual used by J. St. Mill for the analysis of economic decisions of humans his critics have implemented the term economic man or Homo economicus.
According to the «economic imperialism» point of view, the success of economics in the second part of the previous century is caused by its rigorous language and solid methodology; the starting point here is that rational individuals engage in maximizing behavior under given constraints. Maximization assumption means that clear and predictable behavioral responses to any stimulus become possible. Hence such approach to individual rationality allows making reliable predictions concerning new situations.
From the «technical» side individual self-interests are defined through the individual preferences. Consequently, Homo economicus is determined today as individual with defined preferences pursuing self-interest and trying to do the best given his opportunities. The emphasis on preferences results in understanding rationality as an individuals’ consistency of choice. The alternative view is presented by the theory of intentional behavior based on «folk» psychology.
Some important questions are arising due to the role of preferences in interpreting rationality. These concern the possibility of «vicious circle», because of explaining behavior in terms of preferences which in turn revealed only by behavior, preferences stability and plausibility of assumption about single preference ordering. Still, these questions can be answered worthily within the neoclassical theory.
Conclusions of the research. The rationality assumption of some kind is one of the key elements of any theoretical construction in economics. Within classical and neoclassical approaches rationality is interpreted as self-interests pursuing by an individual with strictly defined preferences who is trying to do the best under given constraints. Since economics concerns mostly the explanation of aggregated rather individual behavior, the notion of rationality acquired special importance through its embedding in a social context. As a result, today is often suggested that rationality is more the feature of different types of institutions, in particular, markets, than individuals.
Short Abstract for the article
Abstract. The features of human behavior rationality’ interpretations within classical and neoclassical traditions are studied. It is shown that in the core of this approach remains the idea that individuals pursue their self-interests, which are described by preferences ordering. It is underscored that special importance of the notion of rationality is acquired through its embedding in a social context.

Keywords

 the rationality of human behavior, «economic man», self-interests, the system of preferences, maximizing behavior, consistency of choice.

Reviewer

External reviewer

Article in PDF

 2 11-25

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Code DOI

 10.31359/2411-5584-2018-33-2-11

16.04.2018