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Rational behaviour and economic theory

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Abstract

The difficulties in atheoretical study of aggregate data have led economists to propose a bottom-up approach to the study of macroeconomic phenomena. The approach involves establishing a theory of individual behaviour and transforming it into a theory of the economy using aggregation methods. As a result, even though macroeconomics is primarily concerned with aggregate phenomena such as the unemployment level or general price movements, issues of individual behaviour have come to occupy a central place in theoretical economic analysis. The chief conjecture about ‘homo economicus’ is that he behaves rationally. This conjecture is thought to be an ‘engine of truth’ that helps to discover the laws of economic behaviour. Market forces are said to eliminate irrational behaviour, and this justifies focusing on the study of rational behaviour. This chapter studies the contribution of various rationality hypotheses to theoretical economics.

Keywords

Expected Utility Rational Behaviour Small World Choice Situation Bounded Rationality 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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Copyright information

© Reza Salehnejad 2007

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