The Strong Conflict Between Human Behavior and Economic Theory — Asad Zaman

Over the past century, the theory that rational behavior involves maximization of utility has become central to Economic theory. In economics, this theory is established on axiomatic grounds, and supported by intuitions and speculations. However, When psychologists examined this theory of behavior by carrying out actual experiments on human behavior, they found that the theory leads to wrong predictions in many examples. By now, an overwhelming amount of evidence has emerged to show the strong conflict between economic theories of human behavior and actual behavior; a survey of is given in “Empirical Evidence Against Neoclassical Utility Theory: A Survey of the Literature,” This post provides the details of this conflict in one example taken from the paper, where four major predictions of economic theory are all in direct conflict with the experimental evidence.…

Values are non-rational but not irrational either. Values are the ultimate criteria of individuals, societies, and cultures. They shape worldviews. Worldviews justify what is accepted as "rational." Values provide specific criteria for judgement.

Some values are socially determined while the most fundamental ones are natural in the sense of common to humans and seem to emerge from the evolutionary process, for example, reciprocity and fairness. All wisdom traditions, some of which are instantiated in the various religions, have some version of "the golden rule."

The problem with conventional economics in this regard is that economic rationality is conflated with human rationality when the former is a subset of the latter. Thus, the empirical disconfirmation of the economic theory of value extended to value theory and theory of action. It is fallacy of overgeneralization, and logical fallacies are failures of reason.

Incidentally, this is another indication of the conflict between (bourgeois) liberalism (in which economic liberalism dominates over social and political liberalism) and most forms of traditionalism. Western liberalism is chiefly bourgeois liberalism; it is not surprising that most conventional economists fall into the trap of overgeneralization regarding "rational choice."

An Islamic Worldview
The Strong Conflict Between Human Behavior and Economic Theory
Asad Zaman | Vice Chancellor, Pakistan Institute of Development Economics and former Director General, International Institute of Islamic Economics, International Islamic University Islamabad