History of Consumer Choice Theory
Economics, Psychology, and the History of Consumer Choice Theory
This paper examines elements of the complex place/role/influence of psychology in the history of consumer choice theory. The paper reviews, and then challenges, the standard narrative that psychology was "in" consumer choice theory early in the neoclassical revolution, then strictly "out" during the ordinal and revealed preference revolutions, now (possibly) back in with recent developments in experimental, behavioral, and neuroeconomics. The paper uses the work of three particular economic theorists to challenge this standard narrative and then provides an alternative interpretation of the history of the relationship between psychology and consumer choice theory.
The paper examines the relationship between consumer choice theory[1] and psychology during the first half of the twentieth century. There seem to be two popular views on the matter within the contemporary literature. The first is often endorsed by those who are broadly supportive of rational choice theory and its particular instantiation in (what is now) standard consumer choice theory and the second is endorsed by contemporary experimental and behavioral economists who are (to some degree) critical of rational choice theory and the way that it has traditionally been applied to consumer behavior.
Psychology In, Out, and Now (Perhaps) Back In The term "consumer choice theory" will mean the contents of the consumer choice chapter in mainstream microeconomics textbooks; the consumer is assumed to have complete and transitive preferences (and thus could be represented by an ordinal utility function) and chooses the most preferred bundle from the affordable set defined by the standard linear budget constraint.
In simplified form, the standard story of consumer choice theory is that psychology came into economics during the neoclassical revolution of the 1870s, and remained in for the period of cardinal utility theory, but then was
This paper examines elements of the complex place/role/influence of psychology in the history of consumer choice theory. The paper reviews, and then challenges, the standard narrative that psychology was "in" consumer choice theory early in the neoclassical revolution, then strictly "out" during the ordinal and revealed preference revolutions, now (possibly) back in with recent developments in experimental, behavioral, and neuroeconomics. The paper uses the work of three particular economic theorists to challenge this standard narrative and then provides an alternative interpretation of the history of the relationship between psychology and consumer choice theory.
The paper examines the relationship between consumer choice theory[1] and psychology during the first half of the twentieth century. There seem to be two popular views on the matter within the contemporary literature. The first is often endorsed by those who are broadly supportive of rational choice theory and its particular instantiation in (what is now) standard consumer choice theory and the second is endorsed by contemporary experimental and behavioral economists who are (to some degree) critical of rational choice theory and the way that it has traditionally been applied to consumer behavior.
Psychology In, Out, and Now (Perhaps) Back In The term "consumer choice theory" will mean the contents of the consumer choice chapter in mainstream microeconomics textbooks; the consumer is assumed to have complete and transitive preferences (and thus could be represented by an ordinal utility function) and chooses the most preferred bundle from the affordable set defined by the standard linear budget constraint.
In simplified form, the standard story of consumer choice theory is that psychology came into economics during the neoclassical revolution of the 1870s, and remained in for the period of cardinal utility theory, but then was