Utility and Rationality in Neoclassical Economics
A Grangean Interpretation of the Theory of Expected Utility and of the Rational Expectations Hypothesis
DOI:
https://doi.org/10.26512/rfmc.v8i1.29365Keywords:
utility, rationality, economics, ordinalism, expected utility, rational expectationsAbstract
Utility theory is the foundations of the marginalism that grounds neoclassical economics. From its inception, in the 1870’s, it’s been through many transformations: it began as hedonistic (Jevons), acquired ordinalist features (Pareto), radicalized by mid-twentieth century, reaquired some cardinalist properties (von Neumann and Morgenstern) and became expected utility (Savage) and unfold the hypothesis of rational expectations (Muth and Lucas). In this historical development, utility and its associated notion of rationality were stripped of all psychological content, became inextricable of probability reasoning and forward looking. However, they remained as the cornerstone of neoclassical economics which went through important transformations mirroring the chances in its base concepts. The interpretation is based on Gilles-Gaston Granger’s conceptual scheme, allowing us to discuss up to what point the generalization of the rational expectations hypothesis by Lucas can be seen as a regression in relation to von Neumann and Morgesntern’s theory.
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