Karacuka, Mehmet and Asad Zaman (2012) "The Empirical Evidence Against Neoclassical Utility Theory: A Review of the Literature" International Journal for Plurslism and Economics Education, Vol 3, No. 4, p366-414
Previous Version (nearly the same) from SSRN: Empirical Evidence Against Utility Maximization.
69m YouTube Video Lecture on Paper: Behavioral Economics Versus Neoclassical Economics
Slides for Above Lecture from SLIDESHARE:
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Final Published Version downloadable as PDF file from bottom of this page: IJPEE030403.pdf
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Download from my author page on SSRN": Empirical Evidence Against Utility Maximization"
Science is the archetypal empirical endeavour. The theoretical physicist and all-round entertainer Richard Feynman put it best: “It doesn’t matter how beautiful your theory is, it doesn’t matter how smart you are. If it doesn’t agree with the experiment, it’s wrong.” This has been the founding principle of science since its earliest days. Without the painstaking astronomical observations of Tycho Brahe, a sixteenth-century Danish nobleman, Johannes Kepler would not have determined that the planets move in elliptical orbits and Isaac Newton would not have had the foundations on which to build his law of universal gravitation.
In the late nineteenth and early twentieth century, without the ingenious experiments of Albert Michelson and Edward Morley, in which they demonstrated the constancy of the speed of light and the absence of the putative ether (producing perhaps the most famous negative result of all time), Albert Einstein would have lacked a critical empirical basis for his special theory of relativity.
Related Articles not cited or dropped from final version: Maximization Failures
The Empirical Evidence Against Utility Maximization
ABSTRACT
Current Economics Textbooks and Economists justify a theory of consumer behavior based on utility maximization on a priori grounds. This methodology follows Lionel Robbins’ idea that economic theory is based on logical deduction from postulates which are “simple and indisputable facts of experience.” Strong evidence has emerged from many different lines of research that these “simple and indisputable facts of experience” are contradicted by human behavior. In this article, we summarize some of main contradictions between predictions of utility theory and actual human behavior. Efforts to resolve these contradictions continue to be made within orthodox frameworks, but it appears likely that a paradigm shift is required.
Funny Comic which illustrates an important theme of the paper. Comic shows that only Economists have trouble understanding natural outcomes of the Ultimatum Game, where low offers are rejected.
REFERENCES for the Paper
Some BOOKS:
1. Colin Camerer: Behavioral Game Theory - Evidence from Ultimatum Game (Dictator Game) and Prisoners Dilemma shows widespread violations of selfish maximizations
2. Richard Thaler: Quasi Rational Economics: Mental Accounting models show how consumers allocate income into different types and therefore do not maximize as per economic theory models.
3. Much Material in: Blackwell Handbook of Judgement and Decision Making
4. Tastes are not exogenous, but are strongly influenced by socialization and advertising. Predictably Irrational by D. Ariely has very useful material on this topic.
5. Gigerenzer and Todd (2000) Simple Heuristics that Make Us Smart [download link from http://library.nu -- first register]
6. Gary Klein (2009) Streetlight and Shadows: Searching for the Keys to Adaptive Decision Making.
5. Dan Ariely, G. Loewenstein, Drazen Prelec: "Coherent Arbitrariness: Stable Demand Curves without Stble Preferences." QJE Feb 2003. Preferences are formed in course of decision making -- that is choices determine preferences rather than other way around. Subsequent choices are made consistent with initial ones which creates an illusion of existence of preferences and stability -- "the results imply that demand curves estimated from market data need not reveal true consumer preferences."
6. Frederic Lee "The Incoherent Emperor: A Heterodox Critique of Neoclassical Microeconomic Theory". View Download (history1.pdf)
Batson, C Daniel (1992), “Experimental Tests for the Existence of Altruism,” PSA: Proceedings of the Biennial Meeting of the Philosophy of Science Association, Vol. 1992, Volume Two: Symposia and Invited Papers (1992), pp. 69-78
REFERENCE LIST FROM ARTICLE: Seriatim