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Economics: A Methodological Individualism in Search of Its Own Incompleteness

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Abstract

The traditional methodological individualism (MI) of mainstream economics has frozen its opposition to methodological holism within a process of axiomatization completed in the early 1970s at two levels: (1) individual rationality (reduced to optimization); and (2) inter-individual coordination (restricted to market equilibria). This “closed” MI thus defined its own validity limits: (1) a complete list of future states of nature; and (2) a complete system of options markets. The violation of these conditions in the real world makes visible a double phenomenon of incompleteness. Mainstream economics has since developed three strategies of blindness, partial or total, at the cost of multiple inconsistencies. The positive treatment of this double incompleteness sketched in some heterodox schools will give rise to a new, “open,” MI.

A previous version of this article was originally published in French in L’Année sociologique 70 (1) 2020, 231–259: “cindividualisme méthodologique à la recherche de sa propre incomplétude.”

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Notes

  1. 1.

    See Malinvaud (1991) (Chapter 6, and in particular pp.195–200).

  2. 2.

    In this context, the economist comes up against the negative theorems propounded by Sonnenschein, Mantel, and Debreu between 1972 and 1974. They amount to showing (let us put it metaphorically) a certain reciprocal independence between the properties of individual behavior and those of their sum on the market.

  3. 3.

    Except for the fact that the computation of equilibrium prices is left to the institutional mechanism of the market (the auctioneer, as Walras would say), whose origin nobody knows. See also note 1.

  4. 4.

    Ian Hacking traces this tradition back to Pascal, with the invention of numerical probabilities, and to his “wager” presented as the first problem in decision theory (Hacking, 1975).

  5. 5.

    Validity of its formal tools, which does not exhaust its conditions of empirical validity. The reader who would like a deep reflection on the axiomatic method, in relation with the economic discipline, should consult Philippe Mongin (2003).

  6. 6.

    For a pedagogical synthesis, see John C. Harsanyi (1977).

  7. 7.

    As David Kreps (1990) puts it.

  8. 8.

    One can even speak of reinforcement (Orléan [ed.], 2015; and see note 10).

  9. 9.

    Of which we have given a “sociological” characterization in the introduction.

  10. 10.

    For this reason, if the General Equilibrium Theory constitutes the “Standard Theory,” we can call this new central figure of mainstream economics the “Extended Standard Theory,” using a classic terminology from the philosophy of science. Arrow (1985, p. 38) was perfectly aware of this.

  11. 11.

    From an immense literature, let us only quote the manuals of Jean Tirole (1988, 2006, 2018) as well as Bernard Salanié (2005), Patrick Bolton and Mathias Dewatripont (2005) or for “Law and economics” the synthesis of Steven Shavell (2004) or the collection of articles by Alain Marciano (2009).

  12. 12.

    From an overabundant literature, let us extract the small work of the political scientist Wendy Brown (2007) and the sums of Pierre Dardot and Christian Laval (2009), without forgetting the prophetic seminars of Michel Foucault at the Collège de France in 1978–1979. See also the interesting list of components drawn up by Wendy Brown (2007, p. 58).

  13. 13.

    Two references stand out: Pierre Demeulenaere (1996) and Christian Laval (2007).

  14. 14.

    The interested reader can refer to the collective work directed by David Colander, which offers both a pedagogical synthesis and an enlightened critique (Colander [dir.], 2006).

  15. 15.

    For an accessible technical discussion, we refer the interested reader to Romer (2016). The latter is a co-recipient of the 2018 “Nobel” Prize in Economics. See also the earlier critique by Lawrence Summers (1991).

  16. 16.

    All references can be found in Gilles Dostaler’s excellent synthesis (2001).

  17. 17.

    See Daniel Kahneman et al. (1982), Daniel Kahneman (2011) and Gerd Gigerenzer and Reinhard Selten (dir.)(2001), and more recently Richard Thaler and Cass Sunstein (2008).

  18. 18.

    With the intermediate levels of firms, markets, and institutions (see Jacques Lesourne et al., [2002] from an evolutionary perspective, and Samuel Bowles [2004] from a behaviorist perspective).

  19. 19.

    See David Colander et al. (2008), for a brief overview, and Mauro Napoletano et al. (2012) for a concrete example.

  20. 20.

    It would be more accurate to say that the debate is carefully circumscribed to specialized segments, such as experimental economics, behavioral economics, institutionalist theory, even neuro-economics, etc., without ever developing a collective will to revise all levels of the scientific representation of economics, based on what is discovered in these specialized segments.

  21. 21.

    See Milton Friedman (1953)—and his legacy, rather hardened by his successors, which I have studied in Favereau (1995, 2013).

  22. 22.

    The controversial book by Pierre Cahuc and André Zylberberg (2016) offers a caricatural version of this, while the monograph by Angus Deaton and Nancy Cartwright (2016) places the debate at the appropriate level.

  23. 23.

    See Geoffard's lucid chronicle (2019).

  24. 24.

    “[In the face of genuine uncertainty] Learning, in the form of reacting to perceived consequences, is the dominant mode in which rationality manifests itself.” Herbert Simon (1978, p. 8).

  25. 25.

    It can be shown that incompleteness can paradoxically make cooperation easier, contrary to the whole theory of contracts (Favereau, 1995).

  26. 26.

    See recent work on modeling “creative” rationality by Pascal Lemasson et al. (2017).

  27. 27.

    See n.31 below.

  28. 28.

    Let us quote Charles Taylor (1971), Karl Popper (1979) with worlds One, Two, Three, and especially Vincent Descombes (1996). Conventions are the paradigmatic example of intersubjective entities, neither subjective nor objective.

  29. 29.

    The first economist to have defended this thesis is Tony Lawson (2003). See also Edward Fullbrook’s collection (2002).

  30. 30.

    Formally, this implies a change of logic from standard axiomatics: no longer extensional, but intensional (see Favereau (2003). This will be the basis of our critique of Akerlof in the next paragraph.

  31. 31.

    See John C. Turner (1987). We show all the affinities with the research program of the economics of convention (Bessis et al., 2006).

  32. 32.

    For a development, see Favereau (2019, pp. 40–48).

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  1. Economics, University of Paris-Nanterre, Nanterre, France

    Olivier Favereau

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  1. French National Centre for Scientific Research, PARIS, France

    Nathalie Bulle

  2. Nankai University, Tianjin, China

    Francesco Di Iorio

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Favereau, O. (2023). Economics: A Methodological Individualism in Search of Its Own Incompleteness. In: Bulle, N., Di Iorio, F. (eds) The Palgrave Handbook of Methodological Individualism. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-031-41508-1_21

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