Individual Psychology, Rational Choice, and Demand: Some Remarks on Three Recent Studies

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Revue de Philosophie Economique




The literature on the history of the mathematically formalized areas of economic theory has expanded rapidly during the last few decades. It is no longer the case that the only historical narratives available in areas like general equilibrium theory, game theory, and mathematical economics are those contained in the first chapter of standard textbooks. This paper will focus on one particular aspect of three of these recent historical works. I will examine the history of individual demand theory presented in: Sonja Amadae’s Rationalizing Capitalist Democracy (2003), John Davis’s The Theory of the Individual in Economics (2003), and Nicola Giocoli’s Modeling Rational Agents (2003). Before beginning it is important to note that all three authors discuss much more than 20th century demand theory. Amadae is explaining the Cold War origins of rational choice theory and the key role it played in the (successful) redefinition and reconfiguration of liberal political theory in the post World War II era. Hers is a wide-ranging work in political theory and political philosophy and the discussion of demand theory is restricted primarily to one chapter. The Davis book is a philosophical examination of the concept of individual identity in the history of economic theory that draws on a wide range of resources (from Descartes to Sen). His central thesis is that mainstream economics – despite its rhetoric to the contrary – does not really have a theory of individual identity, and alternatively, that certain versions of heterodox economics do have such a theory. Although Giocoli dedicates a much larger portion of his text to the history of demand theory than either of the other authors, it is still just one stepping stone in his overall narrative: a reconstruction of the history of 20th century economics in a way that emphasizes the shift from modeling economic agents and equilibria in terms of their underlying forces, to modeling them as purely formal relations. Giocoli uses this historical framework to explain the delayed acceptance of game theory in economics (among other things). It should be clear from just these brief remarks, that all three books tell a story about 20th century economics that involves the way that economists have theorized about demand and consumer choice, but the discussion of such theorizing is just one aspect of a broader historical project. It should also be clear that the authors’ central theses are not mutually exclusive; they cover roughly the same period of time and much of the same subject matter, but their emphasis, and where they go with the story, is substantially different. Despite the criticisms contained in the following pages, I am broadly sympathetic to the central thesis of all three books. My critical comments will focus exclusively on what they say about the theory of individual demand (and the associated rational choice theory) and not about other aspects of their narratives. The bottom line is that they all tell essentially the same story about demand theory and I think it is both a deeply problematic and a relatively unpersuasive story. In the final section I will explain why I think it is important to make the criticisms I do and why telling the story of 20th century demand theory in a different way would actually strengthen their main points.