Over the past century, the theory that rational behavior involves maximization of utility has become central to Economic theory. In economics, this theory is established on axiomatic grounds, and supported by intuitions and speculations. However, When psychologists examined this theory of behavior by carrying out actual experiments on human behavior, they found that the theory leads to wrong predictions in many examples. By now, an overwhelming amount of evidence has emerged to show the strong conflict between economic theories of human behavior and actual behavior; a survey of is given in “Empirical Evidence Against Neoclassical Utility Theory: A Survey of the Literature,” This post provides the details of this conflict in one example taken from the paper, where four major predictions of
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Over the past century, the theory that rational behavior involves maximization of utility has become central to Economic theory. In economics, this theory is established on axiomatic grounds, and supported by intuitions and speculations. However, When psychologists examined this theory of behavior by carrying out actual experiments on human behavior, they found that the theory leads to wrong predictions in many examples. By now, an overwhelming amount of evidence has emerged to show the strong conflict between economic theories of human behavior and actual behavior; a survey of is given in “Empirical Evidence Against Neoclassical Utility Theory: A Survey of the Literature,” This post provides the details of this conflict in one example taken from the paper, where four major predictions of economic theory are all in direct conflict with the experimental evidence.…
The problem with conventional economics in this regard is that economic rationality is conflated with human rationality when the former is a subset of the latter. Thus, the empirical disconfirmation of the economic theory of value extended to value theory and theory of action. It is fallacy of overgeneralization, and logical fallacies are failures of reason.
An Islamic Worldview
The Strong Conflict Between Human Behavior and Economic Theory
Asad Zaman | Vice Chancellor, Pakistan Institute of Development Economics and former Director General, International Institute of Islamic Economics, International Islamic University Islamabad