For more than a century, neoclassical theory dominated economic thinking. Neoclassical economics is a theory based on three key assumptions: individuals have rational preferences; individuals maximize utility, while firms maximize profits; and people choose independently, based on available information. As with any widely adopted theory, neoclassical economics has huge merits, but it also suffers from important shortcomings.
One increasingly acknowledged flaw of neoclassical theory is its oversimplified model of human nature, known by academics as “homo-economicus.” Homo-economicus is an efficient calculating machine, someone who always knows what he wants and how to get it (that is, he knows his utility and how to maximize it). But people don’t always know what they want, and if they do, they don’t know why they want it or how to get it. Humans are not cold, rational calculators. They are emotional beings, tricked easily with math; but they are also incredibly creative and fantastic social learners. Is it possible to build an economic theory that takes humans as they are? Or is the complexity of the economy too great for there ever to be a theory that includes the more esoteric aspects of human behavior, such as social learning, emotions, and imagination?
The good news is that, when it comes to building such a theory, economists do not have to work alone. For decades, scholars from a variety of disciplines have been exploring the consequences of these “less rational” aspects of human behavior. As the ideas of these outsiders have begun to penetrate the economic community, they have given rise to what I call “post-neoclassical economics.” This is a body of knowledge that incorporates not only the findings of psychiatrists and behavioral scientists but also those of evolutionary geographers, sociologists, anthropologists, political scientists, historians, development experts, and even some physicists. These nontraditional thinkers have explored the role of social networks and political institutions, as well as innovation, imagination, and collective learning in our study of the economy.
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