The behavioral foundations of Austrian economics

  • Randall G. Holcombe


Behavioral and experimental economics present challenges to the neoclassical theory of individual behavior, which is based on individuals making choices within the framework of utility functions that are assumed to have certain well-defined characteristics. Results in behavioral and experimental economics have shown that it is common for individual behavior to systematically deviate from the neoclassical axioms of utility maximization. Austrian economics is also based on axiomatic theories of utility maximization, but the assumptions underlying utility-maximizing behavior are much weaker in the Austrian approach. As a result, they have more solid behavioral foundations and are less subject to challenge by the empirical findings of behavioral and experimental economics. Neoclassical policy conclusions are often overly strong because of its behavioral foundations which are challenged by behavioral and experimental economics and are often misleading because of the comparative static nature of neoclassical welfare economics. For purposes of policy analysis, the Austrian approach provides better insights because of its more realistic behavioral foundations.


Behavioral economics Utility maximization Austrian economics Welfare economics 

JEL Codes

D03 D60 


  1. Ackerlof, G. A. (1970). The market for ‘lemons:’ Quality uncertainty and the market mechanism. Quarterly Journal of Economics, 84(3), 488–500.CrossRefGoogle Scholar
  2. Bator, F. M. (1957). The simple analytics of welfare maximization. American Economic Review, 47(1), 22–59.Google Scholar
  3. Bator, F. M. (1958). The anatomy of market failure. Quarterly Journal of Economics, 72(3), 351–379.CrossRefGoogle Scholar
  4. Besanko, D., & Breautigam, R. R. (2005). Microeconomics (2nd ed.). Hoboken, NJ: Wiley.Google Scholar
  5. Besanko, D., Dranove, D., Shanley, M., & Schaefer, S. (2004). Economics of Strategy (3rd ed.). Hoboken, NJ: Wiley.Google Scholar
  6. Browning, E. K., & Zupan, M. A. (2003). Microeconomics: Theory and applications (8th ed.). Hoboken, NJ: Wiley.Google Scholar
  7. Buchanan, J. M. (1975). Public finance and public choice. National Tax Journal, 28, 383–394.Google Scholar
  8. Camerer, C. F. (2003). Behavioral game theory: Experiments in strategic interaction. New York: Russell Sage Foundation.Google Scholar
  9. Caplan, B. (1999). The Autrian search for realistic foundations. Southern Economic Journal, 65(4), 823–838.CrossRefGoogle Scholar
  10. Cordato, R. E. (1992). Welfare economics and externalities in an open ended universe: A modern Austrian perspective. Boston: Kluwer.Google Scholar
  11. Ferguson, C. E. (1968). Microeconomic theory, revised edition. Homewood, Illinois: Richard D. Irwin.Google Scholar
  12. Frank, R. H. (2003). Microeconomics and behavior (5th ed.). Boston: McGraw-Hill Irwin.Google Scholar
  13. Friedman, M. (1953). Essays in positive economics. Chicago: University of Chicago Press.Google Scholar
  14. Graaf, J. de V. (1957). Theoretical welfare economics. Cambridge: Cambridge University Press.Google Scholar
  15. Hayek, F. A. (1945). The use of knowledge in society. American Economic Review, 35(4), 519–530.Google Scholar
  16. Holcombe, R. G. (1989). Economic models and methodology. New York: Greenwood.Google Scholar
  17. Isaac, R. M. (2002). The voluntary provision of public goods. The encyclopedia of cognitive science. London: Macmillan.Google Scholar
  18. Kahneman, D. (2003). Maps of bounded rationality: Psychology for behavioral economics. American Economic Review, 93(5), 1449–1475.CrossRefGoogle Scholar
  19. Kahneman, D., Knetsch, J. L., & Thaler, R. H. (1991). Anomalies: The endowment effect, loss aversion, and status quo bias. Journal of Economic Perspectives, 5(1), 193–206.Google Scholar
  20. Kirzner, I. M. (1988). Welfare economics: A modern austrian perspective. Ch. 7. In W. Block, & L. H. Rockwell Jr. (Eds.), Man, economy, and liberty: Essays in honor of Murray N. Rothbard (pp. 77–88). Auburn, AL: Ludwig von Mises Institute.Google Scholar
  21. Ledyard, J. (1995). Public goods: A survey of experimental research. In J. Kagel, & A. Roth (Eds.), The handbook of experimental economics. Princeton, NJ: Princeton University Press.Google Scholar
  22. Lewin, P. (1995). The efficiency of the market process: An evaluation of three recent Austrian contributions. Unpublished manuscript.Google Scholar
  23. Lipsey, R. G., & Lancaster, K. (1956). The general theory of second best. Review of Economic Studies, 24(1), 11–32.CrossRefGoogle Scholar
  24. Palfrey, T. R., & Prisbrey, J. (1997). Anomalous behavior in public goods experiments: how much, and why? American Economic Review, 87, 829–846.Google Scholar
  25. Pindyck, R. S., & Rubinfeld, D. L. (2005). Microeconomics (6th ed.). Upper Saddle River, NJ: Prentice Hall.Google Scholar
  26. Prychitko, D. L. (1993). Formalism in Austrian school welfare economics: Another pretense of knowledge? Critical Review, 7(4), 567–592.Google Scholar
  27. Rothbard, M. N. (1956). Toward a reconstruction of utility and welfare economics. In M. Sennholz (Ed.), On freedom and free enterprise: Essays in honor of Ludwig von Mises. Princeton, NJ: D. Van Nostrand.Google Scholar
  28. Rothbard, M. N. (2004). Man, economy, and state, with power and market, scholar’s edition. Auburn, AL: Ludwig von Mises Institute.Google Scholar
  29. Samuelson, P. A. (1956). Social indifference curves. Quarterly Journal of Economics, 73(1), 1–22.CrossRefGoogle Scholar
  30. Shapiro, C., & Varian, H. R. (1999). Information rules: A strategic guide to the network economy. Boston: Harvard Business School Press.Google Scholar
  31. Simon, H. A. (1955). A behavioral model of rational choice. Quarterly Journal of Economics, 69(1), 99–118.CrossRefGoogle Scholar
  32. Smith, V. L. (1974). Economic theory and its discontents. American Economic Review, 64(2), 320–322.Google Scholar
  33. Smith, V. L. (1980). Experiments with a decentralized mechanism for public good decisions. American Economic Review, 70, 584–599.Google Scholar
  34. Smith, V. L. (1982). Microeconomic systems as an experimental science. American Economic Review, 72(5), 923–955.Google Scholar
  35. Smith, V. L. (1994). Economics in the laboratory. Journal of Economic Perspectives, 8(1), 113–131.Google Scholar
  36. Spence, M. (1973). Job market signaling. Quarterly Journal of Economics, 87(3), 355–374.CrossRefGoogle Scholar
  37. Varian, H. R. (2003). Intermediate microeconomics: A modern approach (6th ed.). New York: W.W. Norton.Google Scholar
  38. von Mises, L. (1998). Human action, scholar’s edition. Auburn, AL: Ludwig von Mises Institute.Google Scholar
  39. Williamson, O. E. (1990). A comparison of alternative approaches to economic methodology. Journal of Institutional and Theoretical Economics, 146(1), 61–71.Google Scholar

Copyright information

© Springer Science+Business Media, LLC 2009

Authors and Affiliations

  1. 1.Florida State UniversityTallahasseeUSA

Personalised recommendations