Skip to main content Accessibility help
×
Home
Hostname: page-component-568f69f84b-d8fc5 Total loading time: 0.366 Render date: 2021-09-20T03:18:24.406Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "metricsAbstractViews": false, "figures": true, "newCiteModal": false, "newCitedByModal": true, "newEcommerce": true, "newUsageEvents": true }

Austrian behavioral economics

Published online by Cambridge University Press:  26 February 2021

Glen Whitman*
Affiliation:
Department of Economics, California State University, Northridge, USA
*Corresponding
Corresponding author. Email: glen.whitman@gmail.com

Abstract

This paper explores the potential for gains from trade between Austrian and behavioral economics, with a focus on how the two schools of thoughts can constructively critique each other. Among other things, the Austrian critique of behavioral economics would urge it to jettison its restrictive and axiomatic definition of rationality, and to treat humans as active agents rather than passive recipients of environmental and cognitive influences. Meanwhile, the behavioral critique of Austrian economics would push it to take more seriously the fundamental question of how individuals arrive at choices and to analyze how such choices can interact with ‘micro-institutional’ choice environments.

Type
Research Article
Copyright
Copyright © Millennium Economics Ltd 2021

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Agassi, J. (1975), ‘Institutional Individualism’, The British Journal of Sociology, 26(2): 144155.CrossRefGoogle Scholar
Altman, M. (2013), ‘Hayek's Complexity Assumption, Ecological and Bounded Rationality, and Behavioral Economics’, in Frantz, R. and Leeson, R. (eds.), Hayek and Behavioral Economics, New York: Palgrave Macmillan, pp. 221262.CrossRefGoogle Scholar
Altman, M. (2017), ‘A Bounded Rationality Assessment of the new Behavioral Economics’, in Frantz, R., Chen, S.-H., Dopfer, K., Heukelom, F. and Mousavi, S. (eds.), Routledge Handbook of Behavioral Economics, New York: Routledge, pp. 179194.Google Scholar
Ariely, D. (2009), Predictably Irrational: The Hidden Forces That Shape Our Decisions, New York: Harper Collins.Google Scholar
Ben-Shahar, O. and Posner, E. A. (2011), ‘The Right to Withdraw in Contract Law’, Journal of Legal Studies, 40(1): 115148.CrossRefGoogle Scholar
Berg, N. and Gigerenzer, G. (2010), ‘As-if Behavioral Economics: Neoclassical Economics in Disguise?’, History of Economic Ideas, 18(1): 133166.Google Scholar
Bernheim, B. D. (2016), ‘The Good, the Bad, and the Ugly: A Unified Approach to Behavioral Welfare Economics’, Journal of Benefit–Cost Analysis, 7(1): 1268.CrossRefGoogle Scholar
Boettke, P. J. (2010a), ‘Introduction’, in Boettke, P. J. (ed.), Handbook on Contemporary Economics, Cheltenham, UK: Edward Elgar, pp. xixvii.CrossRefGoogle Scholar
Boettke, P. J. (2010b), ‘Is the Only Form of “Reasonable Regulation” Self Regulation?: Lessons from Lin Ostrom on Regulating the Commons and Cultivating Citizens’, Public Choice, 143(3/4): 283291.CrossRefGoogle Scholar
Boettke, P. J. and Coyne, C. J. (2015), ‘Introduction: Austrian Economics as a Progressive Research Program in the Social Sciences’, in Boettke, P. J. and Coyne, C. J. (eds.), The Austrian Handbook of Economics, New York: Oxford University Press, pp. 110.Google Scholar
Boettke, P. J. and Leeson, P. T. (2003), ‘The Austrian School of Economics: 1950–2000’, in Samuels, Warren J., Biddle, Jeff E. and Davis, John B. (eds.), A Companion to the History of Economic Thought, Oxford: Blackwell Publishing Ltd, pp. 445453.CrossRefGoogle Scholar
Boettke, P., Coyne, C. and Leeson, P. (2008), ‘Institutional Stickiness and the New Development Economics’, American Journal of Economics and Sociology, 67(2): 331358.CrossRefGoogle Scholar
Boettke, P., Coyne, C. and Leeson, P. (2013), ‘Comparative Historical Political Economy’, Journal of Institutional Economics, 9(3): 285301.CrossRefGoogle Scholar
Brighton, H. and Gigerenzer, G. (2012), ‘Are Rational Actor Models “Rational” Outside Small Worlds?’, in Okasha, S. and Binmore, K. (eds.), Evolution and Rationality: Decisions, Co-Operation and Strategic Behavior, Cambridge, UK: Cambridge University Press, pp. 84109.CrossRefGoogle Scholar
Camerer, C., Issacharoff, S., Loewenstein, G., O'Donoghue, T. and Rabin, M. (2003), ‘Regulation for Conservatives: Behavioral Economics and the Case for Asymmetric Paternalism’, University of Pennsylvania Law Review, 151(3): 12111254.CrossRefGoogle Scholar
Caplan, B. (2000), ‘Rational Irrationality: A Framework for the Neoclassical-Behavioral Debate’, Eastern Economic Journal, 26(2): 191211.Google Scholar
Coyne, C. J. (2010), ‘Economics as the Study of Coordination and Exchange’, in Boettke, P. J. (ed.), Handbook on Contemporary Economics, Cheltenham, UK: Edward Elgar, pp. 1429.Google Scholar
Damasio, A. (1994), Descartes’ Error: Emotion, Reason and the Human Brain, New York: Avon Books.Google Scholar
De Meza, D. and Reyniers, D. (2012), ‘Every Shroud has a Silver Lining: The Visible Benefits of Hidden Surcharges’, Economics Letters, 116(2): 151153.CrossRefGoogle Scholar
Dequech, D. (2013), ‘Economic Institutions: Explanations for Conformity and Room for Deviation’, Journal of Institutional Economics, 9(1): 81108.CrossRefGoogle Scholar
Devereaux, A. (2019), ‘The Nudge Wars: A Modern Socialist Calculation Debate’, Review of Austrian Economics, 32(2): 139158.CrossRefGoogle Scholar
Di Iorio, F. (2013), ‘Cognitive Autonomy and Epistemology of Action in Hayek's and Merleau-Ponty's Thought’, in Frantz, R. and Leeson, R. (eds.), Hayek and Behavioral Economics, New York: Palgrave Macmillan, pp. 149176.CrossRefGoogle Scholar
Earl, P. E. (2010), ‘The Sensory Order, the Economic Imagination and the Tacit Dimension’, in Butos, W. N. (ed.), The Social Science of Hayek's ‘The Sensory Order’: Advances in Austrian Economics (Vol. 13), Bingley, UK: Emerald Group Publishing, pp. 211236.CrossRefGoogle Scholar
Earl, P. E. (2013), ‘Satisficing and Cognition: Complementarities Between Simon and Hayek’, in Frantz, R. and Leeson, R. (eds.), Hayek and Behavioral Economics, New York: Palgrave Macmillan, pp. 278300.CrossRefGoogle Scholar
Earl, P. E. (2017), ‘The Evolution of Behavioural Economics’, in Frantz, R., Chen, S.-H., Dopfer, K., Heukelom, F. and Mousavi, S. (eds.), Routledge Handbook of Behavioral Economics, New York: Routledge, pp. 517.Google Scholar
Evans, A. J. (2010), ‘Only Individuals choose’, in Boettke, P. J. (ed.), Handbook on Contemporary Economics, Cheltenham, UK: Edward Elgar, pp. 313.Google Scholar
Ferguson, A. (2019 [1782]). An Essay on the History of Civil Society (5th edn), London: T. Cadell. Accessed 12/5/2019 from https://oll.libertyfund.org/titles/1428Google Scholar
Frantz, R. (2013), ‘Friedrich Hayek's Behavioral Economics in Historical Context’, in Frantz, F. and Leeson, R. (eds.), Hayek and Behavioral Economics, London: Palgrave Macmillan, pp. 134.CrossRefGoogle Scholar
Frantz, R. (2017), ‘Harvey Leibenstein: A First Generation Behavioral Economist’, in Frantz, R., Chen, S.-H., Dopfer, K., Heukelom, F. and Mousavi, S. (eds.), Routledge Handbook of Behavioral Economics, New York: Routledge, pp. 4254.Google Scholar
Friedmann, R. (1986), ‘Psychological Meaning of Products: Identification and Marketing Applications’, Psychology & Marketing, 3(1): 115.CrossRefGoogle Scholar
Gabaix, X. and Laibson, D. (2006), ‘Shrouded Attributes, Consumer Myopia, and Information Suppression in Competitive Markets’, Quarterly Journal of Economics, 121(2): 505540.CrossRefGoogle Scholar
Gigerenzer, G. (2008), Rationality for Mortals: How People Cope with Uncertainty, New York: Oxford University Press.Google Scholar
Gigerenzer, G. and Brighton, H. (2009), ‘Homo Heuristicus: Why Biased Minds Make Better Inferences’, Trends in Cognitive Science, 1(1): 107143.Google ScholarPubMed
Gigerenzer, G. and Hug, K. (1992), ‘Domain-specific Reasoning: Social Contracts, Cheating, and Perspective Change’, Cognition, 43(2): 127171.CrossRefGoogle ScholarPubMed
Grice, H. P. (1989), Studies in the Way of Words, Cambridge, MA: Harvard University Press.Google Scholar
Gruber, J. and Köszegi, B. (2001), ‘Is Addiction “Rational”?’, Theory and Evidence. Quarterly Journal of Economics, 116(4): 12611303.Google Scholar
Hayek, F. A. (1945), ‘The Use of Knowledge in Society’, American Economic Review, 35(4): 519530.Google Scholar
Hayek, F. A. (1952), The Sensory Order, Chicago: University of Chicago Press.Google Scholar
Hayek, F. A. (1973), Law, Legislation and Liberty, Volume 1: Rules and Order, Chicago: University of Chicago Press.Google Scholar
Heiner, R. A. (1983), ‘The Origin of Predictable Behavior’, American Economic Review, 73(4): 560595.Google Scholar
High, J. (1994), ‘Marginal Utility’, in Boettke, P. J. (ed.), The Elgar Companion to Austrian Economics, Cheltenham, UK: Edward Elgar, pp. 8791.Google Scholar
Hodgson, G. M. (1997), ‘The Ubiquity of Habits and Rules’, Cambridge Journal of Economics, 21(6): 663684.CrossRefGoogle Scholar
Holcombe, R. G. (2009), ‘The Behavioral Foundations of Austrian Economics’, Review of Austrian Economics, 22(4): 301313.CrossRefGoogle Scholar
Horwitz, S. (1994), ‘Subjectivism’, in Boettke, P. J. (ed.), The Elgar Companion to Austrian Economics, Cheltenham, UK: Edward Elgar, pp. 1722.Google Scholar
Kahneman, D. and Tversky, A. (1979), ‘Prospect Theory: An Analysis of Decision Under Risk’, Econometrica, 47(4): 263291.CrossRefGoogle Scholar
Kesting, S. (2017), ‘Ken Boulding: The Image as A Precursor to Framing?’, in Frantz, R., Chen, S.-H., Dopfer, K., Heukelom, F. and Mousavi, S. (eds.), Routledge Handbook of Behavioral Economics, New York: Routledge, pp. 3641.Google Scholar
Kirzner, I. (1979), ‘Comment: X-Inefficiency, Error, and the Scope for Entrepreneurship’, in Rizzo, M. (ed.), Time, Uncertainty, and Disequilibrium: Explorations of Austrian Themes, Lexington: Lexington Books, pp. 140151.Google Scholar
Kirzner, I. (1987), ‘The Austrian School of Economics’, in Eatwell, J., Milgate, M. and Newman, P. (eds.), The New Palgrave: A Dictionary of Economics, New York: Macmillan, pp. 145151.Google Scholar
Kirzner, I. (1997), ‘Entrepreneurial Discovery and the Competitive Market Process: An Austrian Approach’, Journal of Economic Literature, 35(1): 6085.Google Scholar
Koppl, R. and Whitman, D. G. (2004), ‘Rational-Choice Hermeneutics’, Journal of Economic Behavior and Organization, 55(3): 295317.CrossRefGoogle Scholar
Leeson, P. T. and Williamson, C. (2009), ‘Anarchy and Development: An Application of the Theory of the Second Best’, The Law and Development Review, 2(1): 7696.CrossRefGoogle Scholar
Leibenstein, H. (1966), ‘Allocative Efficiency vs. “X-Efficiency.”’, American Economic Review, 56(3): 392415.Google Scholar
Leibenstein, H. (1974), ‘An Interpretation of the Economic Theory of Fertility: Promising Path or Blind Alley?’, Journal of Economic Literature, 12(2): 457479.Google Scholar
Leibenstein, H. (1975), ‘The Economic Theory of Fertility Decline’, Quarterly Journal of Economics, 89(1): 131.CrossRefGoogle Scholar
Leibenstein, H. (1979), ‘The General X-Efficiency Paradigm and the Role of the Entrepreneur’, in Rizzo, M. (ed.), Time, Uncertainty, and Disequilibrium: Explorations of Austrian Themes, Lexington: Lexington Books, pp. 127139.Google Scholar
Loasby, B. (2004), ‘Hayek's Theory of Mind’, in Koppl, R. (ed.), Evolutionary Psychology and Economic Theory. Advances in Austrian Economics (Vol. 7), Amsterdam: Elsevier, pp. 101134.Google Scholar
Machlup, F. (1982), ‘Austrian Economics’. In Greenwald, D. (ed.), Encyclopedia of Economics, New York: McGraw Hill, pp. 3843.Google Scholar
Myrseth, K. O. R., Fishbach, A. and Trope, Y. (2009), ‘Counteractive Self-Control: When Making Temptation Available Makes Temptation Less Tempting’, Psychological Science, 20(2): 159163.CrossRefGoogle Scholar
O'Donoghue, T. and Rabin, M. (2003), ‘Studying Optimal Paternalism, Illustrated by a Model of Sin Taxes’, American Economic Review, 93(2): 186191.CrossRefGoogle Scholar
O'Donoghue, T. and Rabin, M. (2006), ‘Optimal Sin Taxes’, Journal of Public Economics, 90(10): 18251849.CrossRefGoogle Scholar
O'Driscoll, G. P. Jr. (2004), ‘The Puzzle of Hayek’, Independent Review, 9(2): 271281.Google Scholar
O'Driscoll, G. P. Jr. and Rizzo, M. J. (2015), Austrian Economics Re-Examined: The Economics of Time and Ignorance. London: Routledge.Google Scholar
Oguz, F. (2010), ‘Hayek on Tacit Knowledge’, Journal of Institutional Economics, 6(2): 145165.CrossRefGoogle Scholar
Oprea, R. and Powell, B. (2010), ‘Why Austrians Should Quit Worrying and Learn to Love the Lab’, in Koppl, R., Horwitz, S. and Desrochers, P. (eds.), What is so Austrian About Austrian Economics?: Advances in Austrian Economics (Vol. 14), Bingley, UK: Emerald Group Publishing, pp. 145163.CrossRefGoogle Scholar
Padilla, A. (2009), ‘Review of Richard H. Thaler and Cass R. Sunstein, Nudge: Improving Decisions About Health, Wealth, and Happiness’, Review of Austrian Economics, 22(4): 425429.CrossRefGoogle Scholar
Read, D. (2001), ‘Is Time-Discounting Hyperbolic or Subadditive?’, Journal of Risk and Uncertainty, 23(1): 532.CrossRefGoogle Scholar
Rizzo, M. J. and Whitman, D. G. (2009a), ‘Little Brother is Watching you: New Paternalism on the Slippery Slopes’, Arizona Law Review, 51(3): 685739.Google Scholar
Rizzo, M. J. and Whitman, D. G. (2009b), ‘The Knowledge Problem of New Paternalism’, Brigham Young University Law Review, 2009(4): 905968.Google Scholar
Rizzo, M. J. and Whitman, G. (2018), ‘Rationality as a Process’, Review of Behavioral Economics, 5(3-4): 201219.CrossRefGoogle Scholar
Rizzo, M. J. and Whitman, G. (2020), Escaping Paternalism: Rationality, Behavioral Economics, and Public Policy, Cambridge University Press: Cambridge.Google Scholar
Rosen, S. (1997), ‘Austrian and Neoclassical Economics: Any Gains from Trade?’, Journal of Economic Perspectives, 11(4): 139152CrossRefGoogle Scholar
Rubinstein, A. (2003), ‘“Economics and Psychology”? The Case of Hyperbolic Discounting’, International Economic Review, 44(4): 12071216.CrossRefGoogle Scholar
Ruttan, V. W. (2006), ‘Social Science Knowledge and Induced Institutional Innovation: An Institutional Design Perspective’, Journal of Institutional Economics, 2(3): 249272.CrossRefGoogle Scholar
Sautet, F. (2010), ‘The Competitive Market is a Process of Entrepreneurial Discovery’, in Boettke, P. J. (ed.), Handbook on Contemporary Economics, Cheltenham, UK: Edward Elgar, pp. 87108.Google Scholar
Scheall, S. (2017), ‘What is Extreme About Mises's Extreme Apriorism?’, Journal of Economic Methodology, 24(3): 226249.CrossRefGoogle Scholar
Sent, E.-M. (2004), ‘Behavioral Economics: How Psychology Made its (Limited) Way Back into Economics’, History of Political Economy, 36(4): 735760.CrossRefGoogle Scholar
Sher, S. and McKenzie, C. R. (2006), ‘Information Leakage from Logically Equivalent Frames’, Cognition, 101(3): 467494.CrossRefGoogle ScholarPubMed
Simon, H. (1997), An Empirically Based Microeconomics: Raffaele Mattioli Lectures, Delivered in Milan From 18 to 19 March 1993, Cambridge University Press: Cambridge.Google Scholar
Simonson, I. and Tversky, A. (1992), ‘Choice in Context: Tradeoff Contrast and Extremeness Aversion’, Journal of Marketing Research, 29(3): 281295.CrossRefGoogle Scholar
Smith, V. (2008), Rationality in Economics: Constructivist and Ecological Forms, New York: Cambridge University Press.Google Scholar
Storr, V. (2010), ‘The Facts of the Social Sciences are What People Believe and Think’, in Boettke, P. J. (ed.), Handbook on Contemporary Economics, Cheltenham, UK: Edward Elgar, pp. 3040.Google Scholar
Stringham, E. P. (2010), ‘Economic Value and Costs are Subjective’, in Boettke, P. J. (ed.), Handbook on Contemporary Economics, Cheltenham, UK: Edward Elgar, pp. 4366.Google Scholar
Sunstein, C. R. (2014), Why Nudge? The Politics of Libertarian Paternalism, New Haven: Yale University Press.Google Scholar
Sunstein, C. R. and Thaler, R. H. (2003), ‘Libertarian Paternalism is Not an Oxymoron’, University of Chicago Law Review, 70(4): 11591202.CrossRefGoogle Scholar
Thaler, R. H. (1980), ‘Toward a Positive Theory of Consumer Choice’, Journal of Economic Behavior and Organization, 1: 3960.CrossRefGoogle Scholar
Thaler, R. H. (2015), Misbehaving: The Making of Behavioral Economics, New York: W. W. Norton & Company. Kindle Edition.Google Scholar
Thaler, R. H. and Sunstein, C. R. (2003), ‘Libertarian Paternalism’, American Economic Review, 93(2): 175179.CrossRefGoogle Scholar
Thaler, R. H. and Sunstein, C. R. (2008), Nudge: Improving Decisions About Health, Wealth, and Happiness, New Haven: Yale University Press.Google Scholar
Tversky, A. and Kahneman, D. (1981), ‘The Framing of Decisions and the Psychology of Choice’, Science, 211(4481): 453458.CrossRefGoogle ScholarPubMed
Tversky, A. and Kahneman, D. (1986), ‘Rational Choice and the Framing of Decisions’, Journal of Business, 59(4): S251S278.CrossRefGoogle Scholar
Vihanto, M. (2004), ‘Extending Austrian Economics Toward Psychology: Rules in Loan Decisions’, Review of Austrian Economics, 17(4): 323344.CrossRefGoogle Scholar
von Mises, L. (1998 [1966]), Human Action, Auburn: The Ludwig von Mises Institute.Google Scholar
von Mises, L. (2003 [1933]), Epistemological Problems of Economics, Auburn: The Ludwig von Mises Institute.Google Scholar
Whitman, D. G. (2004), ‘Group Selection and Methodological Individualism: Compatible and Complementary’, in Koppl, R. (ed.), Evolutionary Psychology and Economic Theory. Advances in Austrian Economics (Vol. 7), Amsterdam: Elsevier, pp. 221250.Google Scholar
Whitman, G. and Rizzo, M. J. (2015), ‘The Problematic Welfare Standards of Behavioral Paternalism’, Review of Philosophy and Psychology, 6(3): 409425.CrossRefGoogle Scholar
Williamson, C. R. (2009), ‘Informal Institutions Rule: Institutional Arrangements and Economic Performance’, Public Choice, 139(3-4): 371387.CrossRefGoogle Scholar
Yu, T. F. (2001), ‘Entrepreneurial Alertness and Discovery’, Review of Austrian Economics, 14(1): 4763.CrossRefGoogle Scholar
Zanotti, G. J. and Cachanosky, N. (2019), ‘What Is So Extreme About Mises's Extreme Apriorism?: Reply to Scott Scheal’, LIBERTAS: Segunda Epoca, 4(1): 16.Google Scholar
Zauberman, G., Kim, B. K., Malkoc, S. A. and Bettman, J. R. (2009), ‘Discounting Time and Time Discounting: Subjective Time Perception and Intertemporal Preferences’, Journal of Marketing Research, 46(4): 543556.CrossRefGoogle Scholar
Zenger, H. (2013), ‘Why Firms’ Exploitation of Consumer Myopia may Benefit Myopic Consumers’, Economics Letters, 118(2): 307309.CrossRefGoogle Scholar
Zywicki, T. and Stringham, E. P. (2017), ‘Austrian Law and Economics and Efficiency of the Common Law’, in Zywicki, T. and Boettke, P. (eds.), Research Handbook on Austrian Law and Economics, Cheltenham, UK: Edward Elgar Publishing Limited, pp. 192208.CrossRefGoogle Scholar
1
Cited by

Send article to Kindle

To send this article to your Kindle, first ensure no-reply@cambridge.org is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

Note you can select to send to either the @free.kindle.com or @kindle.com variations. ‘@free.kindle.com’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘@kindle.com’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

Austrian behavioral economics
Available formats
×

Send article to Dropbox

To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

Austrian behavioral economics
Available formats
×

Send article to Google Drive

To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

Austrian behavioral economics
Available formats
×
×

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *