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ABSTRACT
The concept of Methodenstreits is used to analyse the relationship between behavioral and mainstream economics. A Methodenstreit is understood by the authors as a dispute between the more abstract and the less abstract canons of the economic science. It undergoes several necessary stages: discovery of a new research instrument, an exaggerated debate between the canons, and mutual enrichement after the debate. The article reviews the following Methodenstreits: empirical investigations of Hall, Hitch, and Lester vs neoclassical theory of the firm (the ‘full cost controversy’ and the ‘marginalist controversy’); Katona’s consumer research vs Keynesian macroeconomics; Simon’s bounded rationality approach vs neoclassical maximization; and experiments of Allais and others vs expected utility theory.
Acknowledgement
This article is based on a paper presented at the International Workshop ‘Economics and/or Psychology: Interdisciplinary Perspectives on B ehavioral Economics’ organized by Michiru Nagatsu and Magdalena Malecka in Helsinki, May 22-23, 2017. We’d like to thank the organizers and participants of the Workshop, and especially our two anonymous reviewers, who made most helpful commentaries and suggestions. Needless to say, the ultimate responsibility remains ours.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes on contributors
Avtonomov Vladimir, Professor, National Research University Higher School of Economics; Subsection Head, Primakov Institute of World Economy and International Relations, Russian Academy of Sciences.
Avtonomov Yuri, Associate Professor, National Research University Higher School of Economics.
Notes
1 ‘What these approaches shared was a dismissal of the mainstream focus on profit and utility maximization and equilibrium, as well as an effort to develop an alternative’ (Sent, Citation2004, p. 741).
2 However, E.M. Sent includes the Oxford group, which ‘highlighted the importance of case studies, uncertainty, and coordination, with the participation of P. W. S. Andrews, D. M. Lamberton, H. Malmgren, J. Marschak, G. B. Richardson, and G. L. S. Shackle’ in old behavioral economics (Sent, Citation2004, p. 741).
3 See: Lea, Tarpy, and Webley (Citation1987).
4 Pesendorfer (Citation2006, p. 720).
5 Detailed analysis of the following can be found in Hausman and Mongin (Citation1997).
6 For a brief and profound account of these controversies, see Mongin (Citation1997, pp. 558–562).
7 The kinked demand model was simultaneously suggested by Paul Sweezy (Citation1939).
8 We can't help but notice that the asymmetric consequences of rising and declining price for a firm in the kinked demand oligopoly model is strikingly similar to the asymmetric attitude to gains and losses imposed in the famous prospect theory later proposed by Kahneman and Tversky (Citation1979). So a part of criticism of the mainstream theory of the firm resurfaced as a part of behavioral criticism of mainstream theory of consumer choice under uncertainty.
9 However, according to Wade Hands, economists recognized behaviorism as an official credo but never felt comfortable with it (Hands, Citation2010).
10 See Juster and Wachtel (Citation1972); Hymans, Ackley, and Juster (Citation1970).
11 In fact, Katona acknowledged that during smooth macroeconomic dynamics, ICS was a worse forecaster than pure extrapolation (Katona & Morgan, Citation1980).
12 See, for example, Lea et al. (Citation1987). One of their criticisms was that, strictly speaking, Katona collected data about beliefs and not attitudes. However, economic psychologists were much more confident in explaining micro-behavior than aggregate phenomena important for economists.
13 ‘It has taken Katona a quarter of a century to convince economists that there can be mass changes in willingness of consumers to spend’ (Morgan, Citation1978).
14 An interesting detail: the beginnings of this MS could have happened within the walls of Carnegie Mellon, where Simon, Cyert, March worked simultaneously with John Muth, Robert Lucas, Franco Modigliani, and Oliver Williamson (a student of Simon’s). Such concentration of great economic minds on cognitive aspects could result in a fruitful interplay, which deserves a special investigation in itself.
15 Alchian insisted that neoclassical theory of the firm is about industries and not firms. Firms, unlike industries, may follow routines.
16 But Williamson didn’t use the term ‘satisficing’ because he believed that it denoted irrational behavior (Sent & Klaes, 2005).