Digital Commons Network^™

(Wp 2018-02) Extending Behavioral Economics’ Methodological Critique Of Rational Choice Theory To Include Counterfactual Reasoning, John B. Davis

Economics Working Papers

This paper extends behavioral economics’ realist methodological critique of rational choice theory to include the type of logical reasoning underlying its axiomatic foundations. A purely realist critique ignores Kahneman’s emphasis on how the theory’s axiomatic foundations make it normative. I extend his critique to the theory’s reliance on classical logic, which excludes the concept of possibility employed in counterfactual reasoning. Nudge theory reflects this in employing counterfactual conditionals. This answers the complaint that the Homo sapiens agent conception ultimately reduces to a Homo economicus conception, and also provides grounds for treating Homo sapiens as an adaptive, non-optimizing, reflexive agent.