I'm writing a short research paper for my micro class that's supposed to compare how the "Austrian," neoclassical, and behavioral "consumer." In other words, it's supposed to compare how these different schools of thought model consumer behavior. I'm at a loss as to how to explain how Austrians model "consumer" behavior, as the Austrian approach just seems too straight-forward to explain (lol).
I should explain preference scales and then maybe note that the Austrian definition of "cost" and "profit" include psychological costs and benefits, and then what? Any ideas?
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Do they really want you to describe what makes the customers tick in different theories? Or rather how the consumtion affects the economy?
How the consumer acts. The subject of the paper is actually "Three Explanations of Why I Intend to Major in Economics: Neoclassical, Behavioral, and Austrian." So I'm using my decision to major in economics as an example of how these different schools model individual behavior.
You may want to discuss something that revolves around the concept that in Austrian theory the consumer isn't necessarily always separated from the entrepreneur. There are distinctions that are made, of course, but the point is that Austrian theory revolves around the notion of acting man, and the consumer (just like the entrepreneur) is an acting market agent. This market agent may some times be a consumer, and other times an entrepreneur; it depends on the ends he's looking to accomplish. You can talk about the means-end framework, consumption versus saving, et cetera. In any case, I'm sure that the neoclassical, behavioral, and Austrian conceptions of the consumer are fundamentally similar.
Yeah, I'm definitely going to mention that Austrian theory focuses on the individual, as opposed to the consumer. And I will mention how, as Rothbard explains, all actions involve uncertainty about the future and how entrepreneurship is coping with uncertainty by forecasting future conditions, thus making entrepreneurship implicit in every action.
Following this, I will explain my decision to get a degree in economics, and how it involves uncertainty about the future and how it is an entrepreneurial action (me betting on there being a satisfactory job after I graduate).
Now that I started outlining the first chapter of MES with individual action in mind, I definitely have enough material to write about in my short research paper. Thanks for the suggestions. The thought about entrepreneuship will come in handy.
If anyone come up with more suggestions, they'd be very welcome!
Part 1 and Part 2 of this lecture might be helpful...
Also, I think the following parts 1-3 of Kirzner's lecture on entreprenurship are great:
Part1
Part2
Part3
Also, in addition to MES, I think Foundations of the Market-Price System by Milton Shapiro might well be agreat resource for you.
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For Alexander Zinoviev and the free market there is a shared delight:
"Where there are problems there is life."
You might mention that in AE a consumer hurts the economy by consuming, because he is destroying a resource. That he earns the right to consume by producing first.
And that in the other theories it's just the opposite. The consumer is the greatest thing possible for the economy, because he stimulates demand, or whatever jargon they use
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askebabs, thank you very much for the suggestions. Those seem like very useful resources. I'll be sure to look into them.
Smiling Dave, thanks for the suggestion but this paper is supposed to be short and it's supposed to only deal with how/why the consumer makes decisions, not what effects consumption has. If I had more space to write the paper, I would definitely include something about that. Sorry for the confusion.
sometimes i think the first step to being an austrian is having a bad micro professor.
neoclassical theory certainly accomodates the notion that costs and profit include "psychological costs and benefits". economic profit cannot be defined without a notion of opportunity cost and opportunity cost is inherently subjective.
i would also note that it is no revelation that consumers and producers can be (and typically are) the same person. however, just as rothbard does in mes, economists sometimes find it useful to analyze consumers and producers as if they are not different entities (particuarly in partial-equalibrium analysis). But that doesn't always have to be true. Indeed, the first task in learning about general equilibrium is modeling producer and consumer as one in the same.
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I think neoclassical theory rests on faulty methodology, but that has nothing to do with this thread. This thread is about how Austrian economists model the consumer/individual, not how neoclassical economists do.
i thought it was about three approaches to modeling choice (austrian, neoclassical, and behavioral). i guess things have changed since the title post (to which i was directly responding).
anyways, if all you want to do is describe austrian approach to understanding consumer behavior, then you won't have to draw comparisons against neoclassical strawmen! so that's good to know.
No, nothing has changed has changed since the title post. The paper is about how neoclassical, behavioral, and Austrian economists model consumer choice. I'm not sure exactly how the paper will end up - but for now the plan is to divide it into three sections: neoclassical, behavioral, and Austrian. Each section will explain how choice is modelled by that school. I posted this thread because I was initially at a loss as to how to write the "Austrian" section. The responses to this thread helped, and reading/outlining relevant sections of MES and HA was helpful as well. I now have a pretty good outline of the "Austrian" section. At this point, any significant criticism of any single school is beyond the scope of the paper.
Here's some general points you might want to make clear(I guess this is also for the benefit of Student in showing some cases where Austrian utility theory significantly differs to the Neoclassicals). For the Austrians, the ends are the primary things valued by the actor/consumer, with the means being valued derivative to their varying serviceabilities to achieve and actor's highest ranked ends. This is in contrast to the Neoclassical conception of utility which begins contrasting the ordinal valuation of abstract bundles of consumer goods. Hence Nozick's challenge to the Austrins that their explanation of a decision being based on preference contradicts itself with regard to defining a supply of a good is entirely superfluous. Actors consider the goods equally serviceable for achieving their ends, but their actual decisions are based on their valuations and their preferences for certain ends over others. It is immaterial whether the means are of the same supply or not, and whether they appear different or not (even if they do, if from the actor's subjective perspective they are equally serviceable at achieving his ends, they are considered praxeologically the same good, not "perfect substitutes").
Furthermore, the Austrian conception of marginal utility bears no direct analogy to the neoclassical one. The former is a ranking, of the means serving the least valued end/most valued not achieved, as an ordinal number defined in reference to all other rankings(hence any change in its ranking, from rank nth to (n-k)th for instance causing the ranking of k other ends to drop ceteris paribus). The latter is the partial derivative of a cardinal utility function, with no referential content whatsoever. Hence unsurprisingly, some textbook authors, such as Baumol consider the Law of Diminishing Marginal Utility hardly a "law" at all, but generally a plausible hypothesis, e.g. Baumol. No Austrian, understanding how this law refers principally to the marginal valuation of ends would make this kind of mistake.
Ironically, the closest parallel to Austrian marginal utility comes from the MRS (marginal rate of substitution), which does maintain referential content, at least between 2 goods, with its unexplained but necessary diminishing character(as admitted by Hicks in Value and Capital to be a rabbit out of a hat assumption) allowing for a tradeoff in goods bought to be arrived at the tangency point with the budget constraint, analogous with Austrian marginal utility theory whereby the point is reached at which the next good bought would be ranked lower than the good sold in exchange for it. Furthermore, as Dan Mahoney has noted, both the partial derivative of the "utility function" and MRS lack any connection to the actual action undertaken by the consumer, and are floating concepts with uncertain meaning given that they are derived from a cardinal utility function from which only a relation of representation and not equivalence has been established, with the ordinal utility it seeks to represent.