A Brain-Focused Neoclassical Microeconomics
- 374 Downloads
“Brain-focused neoclassical economics” uses neoclassical analytical methods to predict a range of human decision and behavioral flaws documented by behavioral economists and psychologists. It helps explain (and predicts), through deductive methodological means, many presumed “irrationalities,” such as inconsistencies in choices. It also explains laboratory subjects’ failures to appropriately discount future costs and benefits, to ignore sunk costs, and to consider opportunity costs. It also provides an analytical foundation for Adam Smith’s presumption that people have a propensity to specialize and trade: specialization and trade free up the brain’s limited resources for other uses, increasing the potential rationality of decision-making. Overall, under a brain-focused methodology, many presumed “irrationalities” are not the welfare destroying decision errors in need of corrections that they have been made out to be. Rather, they can be reconstrued as welfare enhancing. Moreover, movements toward, say, freer trade can have efficiency and welfare benefits beyond those neoclassical economists have always considered: specialization and freer trade can improve the allocation of external resources, as conventionally argued, but they can also improve the allocation of internal neuronal resources, leading to more rational decisions in the allocation of external resources. Under strict neoclassical economics, instruction founded on perfect rationality is an economic waste. Under a brain-focused foundation for economics, the discipline has the potential for improving decision-making and, as a consequence, economic welfare, in much the same way that property rights, prices, and markets can.
- Akerlof, George A. 1991. Procrastination and obedience. American Economic Review 81 (2): 1–19.Google Scholar
- Ariely, Dan. 2008. Predictably Irrational: The Hidden Forces That Shape Our Decisions. York: HarperCollins.Google Scholar
- Fields, R. Douglas. 2011. Brain wiring: After age 20 its all downhill. Psychology Today, June 21.Google Scholar
- Friedman, Milton. 1953. The Methodology of Positive Economics. Chicago: University of Chicago Press.Google Scholar
- Shelton, Kathryn, and Richard B. McKenzie. 2012–2013. Pedophiles and the regulation of Hugging. Regulation (Cato Institute), Winter.Google Scholar
- Streitfeld, David. 2016. Amazon is quietly eliminating list prices. New York Times, July 3. Available online from https://www.nytimes.com/2016/07/04/business/amazon-is-quietly-eliminating-list-prices.html.
- Telegraph Reporter (unnamed). 2016. Human brain can store 4.7 billion books—Ten times more than originally thought. The Telegraph, January 21.Google Scholar
- Zak, Paul. 2012. The Moral Molecule: The Source of Love and Prosperity. Boston: Dutton.Google Scholar