Revealed Preference Theory, Rationality, and Neoclassical Economics: Science or Ideology

Revealed Preference Theory (Samuelson 1938) is an attempt to establisheconomic theory as a genuine empirical science by ridding it of nonempiricalpsychological concepts. Samuelson’s goal was to rid economictheory of the last vestiges of utility analysis. Samuelson structured histheory on a set of preference axioms that would explain the choices ofeconomic agents. But revealed preference theory is rendered problematicbecause decision making is structured therein on preferences thatconform to an implicit postulate of rationality. Matters are furthercompounded by the fact that despite theoretical support offered bytheorists such as Varian, the empirical results demonstrate that agentdecision making is often at variance with the formal axioms of revealedpreference. The issue is not solved even when decision making isconstrued within the context of imperfect, that is, ‘bounded rationality’.I argue that neoclassical economic theory is best understood as a formof rule utilitarianism. In this regard, neoclassical economics isunavoidably value-laden and should be construed as an aspect ofnormative welfare economics. Thus efforts by theorists such as Vanbergto salvage the assumed scientific credentials of neoclassical economicsby construing the postulate of rationality in evolutionary terms areseen as problematic. Neoclassical economic theory is to be viewedessentially then as an ideology that presents a particular theory ofhuman behaviour. It is this theory that serves as the foundations ofmodern capitalism and its practise as neoliberal economics. This is theanthropological question then: is such an ideology socially optimal forhumans as social animals in terms of efficiency and equity