April 30, 2015

Essentials of Constructive Heterodoxy: behavior {72}

Working paper at SSRN

Abstract  For a host of compelling methodological reasons, homo oeconomicus has to be replaced. This is consensus, the open question is how this could be accomplished. What is required first is the separation of the formal foundations into a structural and a behavioral part. This paper introduces the propensity function as a general formalization of Economic Man/Woman. The propensity function is a compact formal expression of random, semi-random, and deterministic behavioral assumptions. It is shown how, in a random environment, target-oriented behavior produces stochastic stability and optimality in the product market. With homo oeconomicus, the conception of simultaneous equilibrium, too, vanishes.

For the complete set of foundational equations — structural axioms and behavioral propensity function — see Wikimedia AXEC61.