ABSTRACT OF PAPER
Title: Methodenstreit between neoclassical and behavioral economics
Author: Avtonomov Vladimir
All the Methodenstreits in the history of economics seem to deal with the degree of abstraction permissible in the economic science. This was also the case with confrontation between neoclassical and behavioral economics which started with seminal contributions of Herbert Simon and George Katona and discovery of behavioral anomalies by Allais, Ellsberg and the others . Simon opposed neoclassical microeconomics with utility maximization, Katona opposed Keynesian macroeconomics, and Allais etc. opposed expected utility theory. Utility and expected utility maximization were identical with assumption of rationality of some kind. Keynesian macroeconomics was not based on rational microfoundations but presupposed a high degree of stability of behavioral patterns and expectations in the short run All three theories challenged which were exceedingly abstract in view of first behavioral economists, belonged to mainstream of economic science, and behavioral revolt was justly considered a blasphemy by the majority of economists. Microeconomists argued that taking into account the costs of acquiring information would make behavioral economics excessive. Macroeconomists argued that Katona’s psychological intervening variables could be “approximated away” by objective variables . A true Methodenstreit occurred and as the result behavioral contributions were marginalized and kept beyond the mainstream. At the same time the neoclassical theory expanded its field over other social sciences. But the subsequent period was marked by the mutual efforts of conflicting parties to absorb some features of the opponent. On the one hand behavioral economists did their best to construct a fairly general model (prospect theory of Kahneman and Tversky) which embraced a lot of behavioral anomalies discovered in experiments. They made also use of methods of natural science (neuroeconomics) which strengthened the methodological positions of behavioral economics considerably. On the other hand neoclassicists tried to extend the applicability of their analysis to cases where the human behavior is seemingly irrational and model different psychological phenomena and human oddities. Addictions, moral feelings, emotions and other departures from rationality were modelled without any behavioral methods (experiments, case studies, surveys etc.) The both trends brought neoclassical and behavioral economics closer together and allowed neoclassical theory to become much more subtle and “realistic” and behavioral economics to enter the mainstream of economic theory.
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