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1.1 ALTERNATIVES TO THE HOMO ECONOMICUS PARADIGM

We have already discussed the standard decision-making principle used in neoclassical microeconomics, according to which an agent chooses — rationally and perfectly — the option with the highest subjective utility from the set of feasible decisions available and is capable of implementing that decision.

One alternative to this standard decision-making principle is the satisfaction principle, also known as the bounded rationality principle,[1] which assumes that agents do not seek the optimal option for ever: the search process is terminated as soon as a satisfactory solution has been found.

Another alternative to the standard decision-making principle is the concept of cognitive dissonance in an individual's rationality. This assumes that agents' rationality fails and that some agents systematically introduce errors, mistakes and distortions into their decision-making processes when considering past experience.[2] Cognitive bounding of rationality therefore essentially represents the consequences of human flaws (such as procrastination).

Another alternative to the standard decision-making principle is the concept of "hard-core" altruism, where an agent incorporates the utility of other agents, or other members of society, into his decision-making motives.[3]

There is also a series of model modifications of the neoclassical paradigm within the framework of the standard decision-making principle. Perhaps the best known is the labour-managed firm (LMF) for cooperatives, in which the same group of people plays the role of both owners and employees. This model assumes that an LMF maximizes income per capita, where income is the sum of wages and personal income stemming from profit.[4]

Another way to extend the calculation of profit within the standard decision-making principle is to take into account the extent and magnitude of the effort exerted by managers.[5]

A further approach that does not involve abandoning the standard decision-making principle is the superintendent criterion constructed by Benjamin Ward in an attempt to describe the socialist planned economy.[6] The same can be said for the "homo se assecurans" model, where the producer's maximization criterion is the margin between its ability to produce and the output it actually produces. Chapter 6 of this book will be devoted to this model. The "employee escape" model represents another attempt to model and describe a centrally planned economy with typical excess demand in the labour market.[7]

The application of game theory, which takes into account the active existence of other economic agents and the predictable effects of their decisions on the firm's decisions, can also be regarded as an example of generalization within the standard decision-making principle. The same goes for models describing agents' efforts to acquire positional goods, or social status.[8] Buchanan's concept of club goods is also a generalization of the standard economic paradigm.[9]

Even the concept we present in this book, in which we try to construct a general model of economic behaviour, does not abandon the standard decision-making principle. As in mainstream economic theory, we assume that a decision-taker (economic agent) prefers (explicitly or implicitly through his decision) the economic action that he considers to be the best from his perspective, and has information on the consequences of all the possible feasible decisions.

  • [1] Simon, H. A.: Theories of Bounded Rationality. In Decision and Organisation, edited by C. B. McGuire, R. Radner, 161-76. Amsterdam: North Holland, 1972.
  • [2] Akerlof, G. A.: Procrastination and Obedience. American Economic Review 81, 2(1991): 1-19.
  • [3] A review of these concepts can be found in Hlavacek, J. et al.: Mikroekonomie soundlezitosti se spoledenstvim. Praha: Karolinum, 1999.
  • [4] See Vanek, J.: The General Theory of Labor-Managed Market Economies. Ithaca: Cornell University Press, 1970.
  • [5] See Hunter, H.: Optimal Tautness in Development Planning. Economic Development and Cultural Change 9, 4(1961), 561-72, or Keren, M.: On the Tautness of Plans. Review of Economic Studies 39, 4(1972): 469-86.
  • [6] See Ward, B.: The Socialist Economy. New York: Random House, or Hlaváček, J., Tříska, D.: Úvod do mikroekonomické analýzy. Praha: Fakulta sociálních věd UK, 1991, pp. 101–7.
  • [7] Hlaváček, J., Zieleniec, J.: Trh práce v ekonomice, přecházející od plánu k trhu—teoretická východiska. VP No. 379. Praha: Ekonomický ústav ČSAV, 1991, pp. 21–23.
  • [8] Becker, G. S.: The Theory of Social Interactions. Journal of Political Economy 82, 6(1974): 817-26.
  • [9] For more details see section 10.2.1.4.
 
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