Editing Neoclassical economics (section)

=== Rational behavior assumptions ===
One of the most widely criticized aspects of neoclassical economics is its set of assumptions about human behavior and rationality. The "[[Homo economicus|economic man]]", or a hypothetical human who acts according to neoclassical assumptions, does not necessarily behave the same way as humans do in reality.<ref>{{cite book |last1=Thaler |first1=R.H. |last2=Sunstein |first2=C.R. |title=Nudge: Improving Decisions About Health, Wealth, and Happiness |date=2008 |publisher=Yale University Press |location=New Haven, MA}}</ref> The economist and critic of capitalism [[Thorstein Veblen]] claimed that neoclassical economics assumes a person to be "a lightning calculator of pleasures and pains, who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift about the area, but leave him intact."<ref>[[Thorstein Veblen]] (1898) ''Why Is Economics Not an Evolutionary Science?'', reprinted in The Place of Science in Modern Civilization (New York, 1919), p. 73.</ref>

Veblen's characterization references a number of commonly criticized rationality assumptions: that people make decisions using a rigid [[Utilitarianism|utilitarian]] framework, have perfect information available about their options, have perfect information processing ability allowing them to immediately calculate [[utility]] for all possible options, and are independent decision-makers whose choices are unaffected by their surroundings or by other people. While Veblen is from the [[Institutional economics|Institutional]] school, the [[Behavioral economics|Behavioral]] school of economics is focused on studying the mechanisms of human [[decision-making]] and how they differ from neoclassical assumptions of rationality. Altruistic or empathy-based behavior is another form of "non-rational" decision making studied by behavioral economists, which differs from the neoclassical assumption that people only act in self-interest.<ref>{{cite journal |last1=Cory |first1=G.A. |title=A Behavioral Model of the Dual Motive Approach to Behavioral Economics and Social Exchange |journal=Journal of Socio-Economics |date=2006 |volume=35 |issue=4 |pages=592–612|doi=10.1016/j.socec.2005.12.017 |s2cid=144442430 }}</ref><ref>{{cite journal |last1=Lynne |first1=G.D. |last2=Czap |first2=N.V. |last3=Czap |first3=H.J |last4=Burbach |first4=M.E. |title=Theoretical Foundation for Empathy Conservation: Toward Avoiding the Tragedy of the Commons |journal=Review of Behavioral Economics |volume=3 |pages=245–279}}</ref> Behavioral economists account for how psychological, neurological, and even emotional factors significantly affect economic perceptions and behaviors.<ref>{{Cite journal|last=Cartwright|first=Alex C.|date=July 2015|title=Richard H. Thaler: Misbehaving: the making of behavioral economics|url=http://dx.doi.org/10.1007/s11127-015-0276-5|journal=Public Choice|volume=164|issue=1–2|pages=185–188|doi=10.1007/s11127-015-0276-5|issn=0048-5829|s2cid=155150481}}</ref>

[[Rational choice theory]] need not be problematic according to a paper written by the economist [[Gary Becker]] which was published in 1962 in the ''[[Journal of Political Economy]]'' called "Irrational Behavior and Economic Theory".<ref name="Becker">{{Cite journal |last=Becker |first=Gary S. |date=1962 |title=Irrational Behavior and Economic Theory |url=https://www.jstor.org/stable/1827018 |journal=Journal of Political Economy |volume=70 |issue=1 |pages=1–13 |doi=10.1086/258584 |jstor=1827018 |issn=0022-3808}}</ref> According to Becker, this paper demonstrates "how the important theorems of modern economics result from a general principle which not only includes rational behavior and survivor arguments as special cases, but also much irrational behavior." The specific important theorems and results which are shown to result from a broad range of different type of irrational behavior, as well as rational behavior by market participants in the paper, are that market demand curves are downward sloping or "negatively inclined", and that if an industry transformed from a competitive industry to a completely monopolistic cartel and profits are always maximized, then output per firm under the cartel would decrease compared to its equilibrium level when the industry was competitive.

This paper was largely based on the 1950 paper "Uncertainty, Evolution, and Economic Theory" by [[Armen Alchian]].<ref name="Alchian">{{Cite journal |last=Alchian |first=Armen A. |date=1950 |title=Uncertainty, Evolution, and Economic Theory |url=https://www.jstor.org/stable/1827159 |journal=Journal of Political Economy |volume=58 |issue=3 |pages=211–221 |doi=10.1086/256940 |jstor=1827159 |issn=0022-3808}}</ref> The paper sets out a justification for supply analysis separate from relying on the assumption of rational consumption, the representative firm and the way neoclassical economists analyze firm behavior in markets which does not rely on rational behavior by the decision makers in those firms, nor any other type of foresighted or goal directed behavior by them. Becker's subsequent 1962 paper provides an independent justification for neoclassical market demand analysis. The two papers offer separate justifications for the use of neoclassical methodology for supply and demand analysis without relying on assumptions otherwise criticised as implausible.