Learning in Economics: Do Markets Heal? In the opinion of some developers of an alternative approach, the purpose of neoclassical economics is “to demonstrate the social optimality if the real world were to resemble the model”, not “to explain the real world as observed empirically”. The assumption the handbook of experimental economics pdf individuals act rationally may be viewed as ignoring important aspects of human behavior.
Many economists, even contemporaries, have criticized this model of economic man. Large corporations might perhaps come closer to the neoclassical ideal of profit maximization, but this is not necessarily viewed as desirable if this comes at the expense of neglect of wider social issues. The response to this is that neoclassical economics is descriptive and not normative. It addresses such problems with concepts of private versus social utility. There were also internal attempts by neoclassical economists to extend the Arrow-Debreu model to disequilibrium investigations of stability and uniqueness. However a result known as the Sonnenschein-Mantel-Debreu theorem suggests that the assumptions that must be made to ensure that the equilibrium is stable and unique are quite restrictive.
Many see an attempt to model a system as complex as a modern economy by a mathematical model as unrealistic and doomed to failure. One might ask, how can we explain the persistence of the paradigm for so long? Partly, it must be because, in spite of its deficiencies, it did provide insights into many economic phenomena. 2009 global economic meltdown, the profession’s attachment to unrealistic models is increasingly being questioned and criticized. After a weeklong workshop, one group of economists released a paper highly critical of their own profession’s unethical use of unrealistic models.