Stabilizing Consumer Choice: The Role of ‘True Dynamic Stability’ and Related Concepts in the History of Consumer Choice Theory

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The European Journal of the History of Economic Thought




It is often argued that the inability of Arrow-Debreu general equilibrium theory to produce an adequate proof of the stability of the Walrasian price adjustment mechanism was one of the program's most significant failures. This paper will not question this standard interpretation of the history of general equilibrium theory, but makes the case that characterizing the 'stability' question in terms of market stability- in particular the stability of the equilibrium price vector in the Walrasian general equilibrium model - actually helped to stabilize the standard model of consumer choice in general equilibrium theory and elsewhere within microeconomics. The problem of the stability of 'consumer's equilibrium' was much discussed early in the twentieth century, and it has recently re-emerged in a different guise as the 'endowment effects' and 'reference dependencies' of contemporary behavioral economics, and yet it disappeared from mainstream discussion during the period 1950 to 1980. This paper argues that shifting the discussion from the intra-agent stability of the individual consumer to the inter-agent stability of the competitive market contributed - despite its ultimately negative impact on general equilibrium theory - to the long period of stable normal science consumer choice theory enjoyed during the middle of the twentieth century.