economic rationality (economic man) There are two main conceptions of economic *rationality in the *science of *economics: 1) the lesser known *Austrian School *aprioristic, and 2) the mainstream, contingent approximation. One can see their connection by the fact that they can both be defined as seeing people as ‘*self-interested *utility maximizers’. But they give different interpretations to this expression.
1) The Austrian School of economics holds that people always attempt to follow their self(-perceived) interests (including any *altruistic interests) to achieve the most of what they value (get subjective utility from the thought of doing) at any particular time (however imperfect their calculations and whatever the long-term consequences for their utility). The Austrian view is held to be an a priori *truth that can be applied to analyze the behavior of any agent, qua agent, at any time. It is about real subjective strengths of desire that obviously relate to individual *welfare and *liberty somehow, though exactly how requires some *philosophy to sort out. This conception is more or less unfalsifiable by empirical means, its assumptions being near-universally true, but not thereby tautological.
2) By contrast, the mainstream conception of economic rationality is, roughly, the assumption that people are narrowly self-interested and attempt to maximize their ‘utility’ (mainly as a *revealed preference of observable behavior) in a so-called ‘rational’ way (that is, perfectly calculating in order to maximize such utility over time). This is intended to be a highly simplified approximation to the truth that is, therefore, useful for explaining observed economic activity and giving advice—as long as one realizes its self-imposed limitations. This view is easier to apply, and can be falsified (or people can be accused of failing to be ‘rational’), but it is not comprehensive in its applications to *agents. It mainly has its origins in the psychological *egoism defended by Thomas Hobbes (1588-1679), but it is not uninfluenced by the aprioristic view. More important is that it must tacitly rely upon approximating to the truth of the aprioristic view for its links to liberty and welfare. That is, the analyses and prescriptive applications of the mainstream view concerning what people need to do to get more of what they want, lack *libertarian or welfare force to the extent that its assumptions are explicitly put forward as being severely limited, quite unrealistic, and merely about *objective behavior—as some economists insist, whether to preserve scientific status (e.g., Milton Friedman [1912-2006]) or attack pro-market conclusions (e.g., Amartya Sen [1933- ]).
It is not clear to this writer that either conception of economic rationality needs to oust the other from economics, as extreme proponents of each view advocate, for they serve different purposes. The Austrian view will lead to ‘a priori’ theoretical conclusions while the mainstream view will lead to empirically testable predictions. Austrian conclusions, because of their subjective aspect, and mainstream predictions, because of their empirical aspect, cannot completely coincide; though they might often have the same practical import.A Dictionary of Libertarianism