Economics involves understanding human behaviour in economic decision-making situations and in markets. People are complicated beings, and we must make simplifying assumptions if we are to build useful models. Traditional economic theory assumes that people have good access to information and can process it perfectly.....
Paul: The only correlation is that consumers are human. Economists study consumer behavior.
Psychologists study the way people think in different situations.
However, my experience is that economists and psychologists don't generally agree on consumer behavior.
But the goals of economist and psychologist are in the same direction with slight deviation in application.
friedman 1963 or 67 documented that human taste and average incomes are consistent over time. the consumers belong to unanimous levels of income has had similiar level of consumer baskets and thus economics and psychology could be linked wrt levels of income and the taste devloped by the peers and religious or geographical norms od society through which our tastes are moulded intentionally or most ov the time unintentionally
How appropriate is it to use consumer mindset to predict their buying behaviour?
@olatunji consumer mind set for consumption patter is highly correlated and co integrated with the material resources or purcasing power.
consumer wants are unlimited albiet, thier purchasing power is not and thus mindset incorporation into predicting consumer pattern without classifying income or similar levels of purchasing power will be highly misleadind and biased
rather patterns should be forcasted wrt purchasing power which are somewhat underestimated in behavirol economics
notwithstanding i respect the opnions of all other economists
@ Muhammad, the rational for consumer choice is beyond the principles of willingness or ability to pay which is within the purview of the psychologist. Although, there are unending debate regarding whether such psychological factors can be captured using rational or adptive behaviour.
Olatunji Shobande yes but i said earlier i respect the opinion of other researcher/economists. furthermore, taste is the main determinant of human choice and its a pure psychological factor which emerges from many social, cultural, religous,geographical, population density and Govt Policies; among others.
my point is that these psychological factors impact all the people unanimously in the similar kind of boundaries/other-non-economic-factors mentioned earlier.
Thus demand/consumer behavior are mainly determined with the ability to pay rather directly from individual psychological wants. wants are constrained by resource availability and thereby we adapt our thinking wrt incomes/resources.
Given the unlimited resources we can have what we want but resources limits our ability to purchase and thus adaptation of this constraint in our minds makes our taste, in a similar level of income group, constant
sir i referred friedman 1967 that taste and income of consumers are consistent over time using the data of USA.
Also bandwagon, snob and Veblen effects consider the discussion on the topic of consumer behavior wrt psychology and found that income levels are pivotal in consumer choice.
anyhow thanks
There are many new contemporary theories that have emerged after that. A such the debate is still on. You can still develop yours. Like i will be presenting my theory to the house soon.
There is the distinction between the pecuniary (market) and non-pecuniary (psychological) aspects of life (utility). Check the model in
Sherman, A., Shavit, T. & Barokas, G. J Happiness Stud (2019). https://doi.org/10.1007/s10902-019-00079-w
@Sherman, I just ready your research. Its an interesting more and good idea coupled with tour simulations. However, the work took for granted some essential variable that are deciding far to consumption, work, and leisure framework. Hiding under the assumption of utility function without due consideration to the theory of Gary Becker and Grossman demand for health/ human capital means that the model is not complete. As far as I know there are more to it than presented in your model.
@Shobande, indeed the model is lacking the references mentioned. As you know, in some cases, more is worse (In terms of simplisty and coherence)
@Sherman, try and check the argument in Shapiro model that also explained the reasons why labour might preferred to work or leisure. Then, buit the concept in utility form considering Gary Becker and Grossman model. Then you will have a robust model.
consumer behavior, risk assessment (e.g. to invest), saving has much to do with psychology. When Max Weber reflected on Protestantism and the rise of capitalism ( The Protestant Ethic and the Spirit of Capitalism) then he actually reflected on psychology. Life is planned by god (Predestination). Calvinists wanted to see, if they are chosen by god. To be successful was interpreted as a sign to be chosen. Work hard, be successful in business and reinvest their profits in further development were important features (Protestant asceticism and dedication to work). Reading Weber makes it very clear that many aspects of the arguments are actually psychological considerations. People fear to be not among the chosen ones; people's eagerness to search for signs that they are among the chosen ones.....etc.
Eberhard Weber, indeed. Economics perspective neglect morals (Friedman , Robbins) and embody psychological attributes in the concept of preferences and utility. It seems that the linkage is in the divergence between the material and nonmaterial aspects of life - one is set by the market whereas the other reflects man as a social animal (affected by psychology and sociology factors).
increasing economy cause pressure to the middle class family and get psychological behavior changes
Yes. Economy must always be viewed as an interdependent social system in which economic and noneconomic forces are continually interacting in ways that are at times self-reinforcing and at other times contradictory
Behavioral economics (Kahneman & Tversky) started the integration of psychology and behavioral sciences with economics.
A recent Nobel Prize winner is Richard Thaler, in this area of behavioral economics.
If we want to have an economic theory giving concrete and solid replies on economic questions, then we have to assume that human behavior concerning economic issues is rational and based on the information, which, besides, is not far from reality. Otherwise we can not build an economic model, but only impractical theories on behavioral economics, games playing and decision making.
The problem of traditional economic theory is not on the human behavior concerning economic issues, but on some fundamental mathematical and conceptual mistakes that it has done. On this matter, please permit me to draw your attention to my Question "Which is the primary reason that traditional economics cannot explain reality? Lack of a realistic theory or the mistakes of the traditional theory?", which you can find in my profile page, as well as to my relevant article "The Tragic Mistakes of the Economic Theory Still Being Taught in Universities".
The use by mainstream economics of the assumption of an infinite or quasi-infinite number of firms, as the main feature of perfect competition, is unnecessary and wrong. The main feature of perfect competition is the zero profit and this is enough to define perfect competition. Mainstream economics does also use zero profit in perfect competition, but at the same time makes the assumption of an infinite number of firms, which not only is unnecessary but also comes in antinomy with zero profit. Because the profit becomes zero, by the free entry of firms into the market, as soon as the number of firms reaches a certain finite number which eliminates the excess profit that existed so far when the number of firms was still relatively small. This occurs because, by the continuous entry of firms into the market due to excess profit, price continuously drops (due to supply increase) until some time equates the average cost of the firm. But this happens with a finite and not infinite number of firms. Now, zero profit means price=average cost, which in turn implies demand=supply. This means that the supply curve must be the average cost and not the marginal cost curve.
At the same time firms take care of the maximization of profit, which eventually becomes zero at the end of the equilibrium process, due to the continuous entry of firms into the industry (as described above). So, at the end of the equilibrium process, we have zero profit, which at the same time is the maximum profit for the firms. Of course, when we speak for profit, we always mean, as known, the economic profit (i.e. the extra profit over the normal one prevailing in all kinds of business). This maximization of profit ensures the stability of price, since any declination (+ or -) of the firms from that equilibrium production, in an attempt for more profit, will yield them less economic profit than the previous maximum zero economic profit (i.e the normal profit) or even loss. So, in order to have stability under a single price, it is not necessary to have an infinite number of tiny firms. Neither stability of price means horizontal individual demand curve for the firm, as conventional theory interprets it (price taking principle).
All of the above are mathematically summarized in the solution of a system of three equations (demand, supply, profit maximization) with three unknowns (price, quantity, number of firms), and not a system of two equations (demand, supply) with two unknowns (price, quantity) as conventional economics says. Conventional economics lacks profit maximization at market level equilibrium, although it sets it as a presupposition for the operation of firms, and this is a great inconsistency.
Regarding profit maximization of my previous reply, some colleagues question: Why should profit maximization exist at market level? At firm level, it is the objective of the owner of the firm, but at market level no agent has this objective.
The answer is simple: If each firm maximizes its profit, then the aggregate profit of the industry (market level) is also maximized. This is easily proved mathematically (see Appendix C of my following article).
Article A Revision of the Theory of Perfect Competition and of Value
What is the profounder reason that Neoclassical economics prevailed over Classical economics and the other economic theories? The most easy and apparent answer to this question is the factor of Demand, which the former was taking into consideration, while the latter not. But is this indeed the profounder reason? In my opinion, the profounder reason was not this, but the mathematical validation with which neoclassicals supported the social superiority of the new theory: equilibrium production and price at the minimum cost, maximization of social welfare, fair income distribution according to the marginal product of each productive factor, optimization of Pareto economic efficiency through the optimal allocation of the productive factors in the economy, etc. This mathematical validation could completely support scientifically, and thus impose, the neoclassical theory as true and the respective economic system as the most socially fair and efficient.
But the problem is that the mathematical validation of the neoclassical theory on crucial and fundamental issues is wrong: a) The most obvious mistake and inconsistency of that theory is that it doesn't maximize the profits of firms, although it considers this maximization a presupposition for the economic equilibrium. b) The individual demand curve for the firms cannot be horizontal, while their sum, the total demand, is sloping. c) the theory considers the total supply curve, which determines equilibrium and price, without considering the number of firms, which forms this total supply curve. d) the theory necessitates infinite number of tiny firms for perfect competition, which is wrong and unnecessary; if we introduce the number of firms into the equilibrium system, the derived number of firms is finite.
If we make the right corrections on these mistakes, the revised theory leads to totally different outcomes concerning equilibrium prices and production and, what is crucial, all the previously mentioned social benefits, on which neoclassical economics was based, are not valid anymore. And then the existing theory is collapsed by its own means and within its own framework. It follows that economists must think what to do then. But this is another story.
Since the second half of the twentieth century economic theory, unable to explain economic reality, has been moved increasingly away from traditional price theory to more modern trends such as game theory, decision theory, behavioral-empirical-experimental economics, heterodox economics etc. There is no doubt that reality is always far from the ideal state of theory and any attempt to complete theory with assumptions and parameters closer to reality is welcome. But what about if a big amount of divergence between reality and theory is due to mistakes of the theory itself?
I believe that traditional (mainstream) economics have a series of serious fundamental mistakes, which, if revised, lead to a totally different theory about how economy works. And as we always need a basic theory before we proceed to any completions and improvements of it to better match reality, we should first consider this revised basic theory. To be more concrete, the fundamental mistakes of the traditional mainstream economics are, in my opinion, the following:
1) The price taking principle and the horizontal individual demand curve for the firm
Price taking of course prevails in the market after the equilibrium has taken place, but the question is how the equilibrium is determined beforehand, by the forces of demand and supply, which certainly remain the same before and after equilibrium (meaning that a sloping demand curve can not be horizontal at the time of equilibrium). The revision here is simply that the individual demand for the firm is the total demand equally distributed to the number of firms, because buyers certainly do not have a preference for some firms in buying the product since it is an homogeneous product. This means that the individual demand curves for the firms are sloping and not horizontal and this has tremendous implications on the economic theory and its outcomes (the equilibrium point is not at the minimum average cost, which invalidates the maximization of social welfare and the optimization of Pareto efficiency, etc).
2) The supply curve
The question here is which the supply curve is, the average cost or the marginal cost curve? According to Marshall it was the average cost curve, but according to the Marginalists, who eventually prevailed in mainstream economics, it is the marginal cost curve. This latter however creates a big inconsistency: the equilibrium point, that is the intersection of total supply and total demand curves, does not maximize the profits of firms, as this maximization occurs at the intersection of total supply (marginal cost) and the total marginal revenue (and not the total demand). Yet, the profit maximization is a basic assumption in mainstream economics and should be hold at market level if it holds at firm level (it is simply a matter of aggregation). The revision here is that the supply curve is the average cost curve, and its intersection with the demand curve gives the zero (economic) profit, which is the fundamental feature in perfect competition with the continuous entry of firms till the zeroing of profit.
3) Ignorance of the firms' number as a key factor in determining equilibrium
Traditional theory sought the solution of the market equilibrium question in the intersection of two curves, demand and supply, to determine the equilibrium pair of price (p) and quantity (Q), while ignoring another factor involved in the determination of equilibrium, namely the number of firms (n), which is absolutely necessary to determine the equilibrium since this factor shapes the total supply and thus its intersection with the total demand. So we need one more equation to determine the additional unknown (n), and this equation could be none other than the equation of profit maximization, that traditional theory lacks at market level as said before. Thus the system of three equations (Demand, Supply, Profit maximization) determines the three unknowns (price, quantity, number of firms); and furthermore the number of firms in perfect competition is definite and not infinite or indefinite, as the traditional theory assumes.
These revisions bring about dramatic changes in the whole economic theory and in the social welfare, with tremendous political implications. For more analysis and for the outcomes of this research, please refer to my articles (available at ResearcgGate and ssrn):
Article The Tragic Mistakes of the Economic Theory Still Being Taugh...
Article A Revision of the Theory of Perfect Competition and of Value
I would be very appreciative to have your opinion, thesis and comments on this discussion.
Mainstream economics is in general a powerful economic theory and a great starting point to build a new improved and more right economic theory. The grounds it has put to build the economic theory are logical, reasonable and indisputable for a general basic economic theory of perfect competition: homogeneity of commodity, free market, free entry of firms, free movement of production factors, rationality and knowledge by the economic agents. Of course reality does not resemble all these perfections, but it is well-known that always reality deviates from the ideal situation of theory. A basic theory always grounds to some ideal situation, even in physics, otherwise you cannot have a basic theory. What you can do is to complete this basic theory with more parameters and tools in order to capture deviations of the above basic assumptions from their ideal states.
So, the problem with the mainstream economics lies not in the above methodology, but in some fundamental mistakes in its analysis, the most serious being: the price taking principle (horizontal demand curve for the firm) and the wrong assumption for infinite number of tiny firms.
Some colleagues think that modern mainstream economics with its advanced mathematical tools (bordered Hessian matrixes, vectors, differential calculus, optimization conditions, etc) has eliminated whatever shortcomings and errors the neoclassical economics had. For example, Arrow-Debreu theory, Stockey-Lucas's and Sargent's Recursive methods on competitive equilibrium, etc. This is not true, because all these theories are based on the assumptions of the neoclassical economics, the cornerstone of which is the wrong assumption of the price taking principle. This assumption is mistaken because you cannot take the equilibrium price as given, while you search to determine this price in equilibrium; that is, to take the equilibrium price after equilibrium, while you are before equilibrium. This wrong assumption leads to a horizontal demand curve for the firm, and to the big inconsistency of the neoclassical theory: to present the profit of firms as maximized at firm level, but not at the aggregate market level (where the demand curve is sloping), because there maximization occurs at the intersection of aggregate supply with aggregate marginal revenue and not with aggregate demand as neoclassicals say. This wrong horizontal demand curve for the firm also leads to the wrong conclusion of welfare maximization (of both consumers and firms), as in the long run (by the entry of firms due to profit until the zeroing of it) this horizontal curve maximizes welfare by becoming tangent to the U-shape average cost curve at its minimum point, which would be possible only if this firm's demand curve was horizontal, which is not true.
As for the superiority of modern advanced mathematical economics, I am always in favor of mathematics, but I think that topological mathematics in economics with its graphical presentations (instead of abstract mathematics) helps economists to better understand and realize how the mechanics of economy work and therefore to posit the right conceptual foundation.
What did go wrong and the neoclassical theory slipped into all those mistakes I have often mentioned previously? If we make a rough historical retrospection on this issue, the wrong course of the economic theory starts, in my opinion, from Cournot (1838).
Cournot was a great mathematician and economist and he was the first who introduced profit maximization into economics and examined it in a full mathematical way by using differentiation and margins (marginal revenue= marginal cost). However, he made some mistakes: Although he correctly perceived that firms have a sloping demand curve, he wrongly considered it parallel to the total demand (instead of distributing the total demand among firms), and he also perceived (wrongly) infinite number of tiny firms, which led to the wrong conclusion price=marginal cost.
Marginalists, who came afterwards and prevailed in the formulation of the Microeconomic theory, retained this marginal concept of Cournot for profit maximization, considered marginal cost as the supply curve, and combined it with the demand curve to determine equilibrium at their intersection. In vain Marshall insisted that equilibrium takes place at the intersection of demand with the average cost as supply curve.
But this way we have neither zero profit under perfect competition (since this occurs at the intersection of demand with the average cost supply curve, as then price= average cost) nor profit maximization (since this occurs at the intersection of marginal cost with marginal revenue and not with the demand). It must be noted, however, that in this way it seems that a lot of social benefits are achieved: social welfare maximization (by maximizing consumers and producers welfare), Pareto efficiency optimization of the economy (by optimizing allocation of the production factors), minimum cost of production, and fair income distribution among production factors (labor and capital). But this does not hold, since the structure of the economic model is wrong.
It is really awkward how mainstream economics has such serious fundamental mistakes (as those I have often mentioned) nowadays that economic science has fully mathematicized. The only reasonable answer could be that it has not been developed from the beginning on solid mathematical thinking and foundations, and this resulted in those failures being inserted into it at its early stages (like that of Cournot and of marginalists, I mentioned earlier), which remained later during its evolution despite its full mathematization.
The problem of equilibrium seeks to determine price and quantity under given demand and supply (based on cost). Neoclassicals tried to solve this problem at market level, where total demand is more or less known. So far no problem. But on the supply side, supply is based at firm level (production cost of firm) and thus we need the number of firms to determine the total market supply and its intersection with the total demand for equilibrium. This was ignored by the Neoclassicals, which resulted in all those mistakes and in the development of a distorted system in their attempt to solve the problem.
So, we have three unknowns (price, quantity, number of firms) and we need three equations to solve the problem of equilibrium (and not only two -demand and supply- as Neoclassicals did). The third equation is no other than the profit maximization condition, a condition that Neoclassicals themselves set but did not apply at market level where they always examined equilibrium.
I referred previously to some mistakes of the Cournot theory (1838) which misled the subsequent neoclassical economics into a wrong course. I would like to say something more on this crucial point.
Cournot connected equilibrium stability with infinite number of tiny firms, so that each of them be not able to influence the total quantity and hence the equilibrium price. This was the first mistake of Cournot, because for stability it is not necessary the infinite number of tiny firms, but just the maximization of profit of firms, which takes place in only one and single point. Any movement away from this point reduces the maximum profit and for this reason the movement is not actualized by any firm, which provides the stability of equilibrium. This profit maximization condition constitutes the 1st equation of the mathematical system.
The 2nd equation is the zero profit due to perfect competition. In connection with the previous equation of maximization, this means that the previous maximum profit of firms is reduced to zero by the entry of new firms into the industry due to the extra profit until it becomes zero.
The 3rd equation is the demand function. This system of three equations determines the three unknowns price, quantity, number of firms (p, q, n).
The critical characteristic of perfect competition is the zero profit. Cournot also concluded zero profit in perfect competition, but due to the infinite number of firms and their tiny size, which is unnecessary, because the profit becomes zero when the number of firms reaches a level where the ever decreasing revenue due to the entry of new firms equals the cost. Unfortunately, the Cournot's mistake about equilibrium stability did not stop there, but it was continued by the post Cournot neoclassicals with a worse confusion, since they misinterpreted the previous stability condition of Cournot as a horizontal demand curve for the firm (price taking principle). The big irony here is how they interpreted it this way, since Cournot himself considered the individual demand for the firm as sloped.
@ Dimitrios, your contributions is highly appreciated. But, if we assumed that the Cournot theory was wrong and misleading. Then, the same error apply to Nash Equilibrium. It turn out that there is still a lacuna in bargaining problem. The Cournot-Nash weak equilibrium has the advantage of being easily calculable for normalized games of the non-constant-sum type. I believe quite definitely that deviations from a Cournot-Nash equilibrium in an experimental game will be extremely useful in measuring the effect of the learning process upon the ultimate outcome of a bargaining situation.
Dear Olatunji,
You give me the opportunity to proceed to the second big mistake of Cournot, which I intended to do anyway in a second stage:
Cournot correctly considered the individual demand curve for each firm sloped, but he made the mistake to consider it parallel to the total demand (shifted to the left analogically to the number of firms). This is wrong simply because the sum of all of those individual demand curves doesn’t give the total demand for each price. This paradox comes from the odd (and erroneous) Cournot's perception that the choice of a producer to produce a specific quantity reduced the residual demand for the rest of the producers by this constant quantity for every price of the product; that is, the residual demand for the rest of the producers was cut down for every price by the quantity that the first producer decided to produce. Of course, after the successive counteractions between the producers (the infamous Cournot's concept of “best response”), the eventually resulting equilibrium involved equally shared quantities among them -which is absolutely reasonable for a uniform producers' cost- but, due to the erroneous perception about the individual demand curves, the point of final equilibrium, i.e. the final equilibrium price and quantity was wrong. The real individual demand curves for the firms distribute equally the total demand among the firms for every price, due to product homogeneity and hence indifference of the consumers as to the choice of the selling firm. For more analysis see my paper:
Article A Fundamental Reformation of Neoclassical Economics
So, the "best response concept" of Cournot is wrong and the same is the subsequent Nash game theory which is based on that Cournot concept.
Dear colleagues,
I see that many fellows read my article "A Revision of the Theory of Perfect Competition and of Value". I would like to inform you that there is a recently revised version of it on my profile page under the title "A Fundamental Reformation of Neoclassical Economics" and I would suggest that you rather read the latter as more improved. I think that the above article, supplemented by the equally important article "The Tragic Mistakes of the Economic Theory Still Being Taught in Universities", which is very short and easy to read, correct some fundamental mistakes and change dramatically the conventional Neoclassical theory.
I also see that many fellows read my theses, arguments and explanations on this discussion page, closely related to the above articles and theory, and follow me as they find them interesting.
However, I don't see any reaction from the academic society regarding these dramatic changes in the economic theory. I would be very interested in having your opinion, comments, objections, or questions/queries on these mistakes and the relevant corrections of the conventional theory, and having a discussion through this discussion/question page.
The integration is ongoing with the introduction of Nudge Economics. Neo-classical economics has given us a framework to study about maximization, equilibrium and efficiency. The behavior of markets need an added dimension to take into account inefficiency and disequilibrium which need an understanding of psychology where the work of Richard Thaler and Kahneman make significant contributions.
Dear colleagues,
I see that many fellows read my research articles on the mistakes of the Neoclassical theory, but there is a reluctance to express their opinion on them at this discussion page, although I have kindly requested for it. Maybe this is because my research may be viewed as belonging to heterodox economics, for the acceptance of which there is much reluctance. I would like to make here clear that such a view is wrong. Because heterodox economics criticizes neoclassical economics on the basis that its assumptions are too much ideal (complete knowledge, rationality, perfect mobility of labor and capital, free entry of firms into the market, etc) and not at all realistic, while my research accepts all those assumptions, which it considers necessary for the formation of the basic economic model (that could be maybe improved afterwards by introducing more realistic parameters), and just corrects some fundamental mathematical mistakes in the structure of this basic model. The fact that those corrections lead to a considerably different microeconomic and welfare theory is another thing, but this is the truth.
You can find the complete view of my research in my new article (which is a merger of my previous main articles A Revision of the Theory of Perfect Competition and of Value and The Tragic Mistakes of the Economic Theory still being taught in Universities):
Article The Mathematical Mistakes of Neoclassical Theory and its Reformation
and I would appreciate very much to have your opinion, comments, objections, or questions about that on this discussion page.
There is already much criticism against neoclassical economics and many modern economic theories have been developed because of this (game theory, decision theory, behavioral-empirical-experimental economics, neuroeconomics, heterodox economics, etc). In what my approach is different?
All modern theories criticize conventional theory on the basis of its deviation from reality due to its ideal assumptions. There is no doubt that reality is always far from the ideal state of theory, and any attempt to complete theory with assumptions and parameters closer to reality is welcome. But what about if a big amount of divergence between reality and theory is due to mistakes of the theory itself?
My approach accepts the ideal assumptions of neoclassical theory, because it considers them necessary for a basic theory, but reveals some fundamental mistakes in it, which, if revised, lead to a totally different theory and outcomes about how economy works, thus approaching closer reality. So, before seeking for a new more realistic theory, we must correct the conventional theory, and then improve it (to the extent it is necessary) by new more realistic models based on this corrected basic model.
You can find all this reformation in my new paper (that replaces my previous one A Revision of the Theory of Perfect Competition and of Value):
Article The Mathematical Mistakes of Neoclassical Theory and its Reformation
I would like to say a few words about the biggest mistake of Neoclassicals to consider the demand curve of the firm as horizontal. First of all, this is based on the price taking concept of Neoclassicals, which is wrong because it refers to a time after equilibrium, whereas we are before equilibrium seeking for an equilibrium price.
But even if we accepted this wrong concept, the interpretation of it does not mean that the demand curve of the firm is horizontal, but rather that this happens to its supply curve, as the firm can sell as much as it wants to potential customers at this equilibrium price without affecting the price due to its very small production. So, its supply curve becomes horizontal. But regarding the demand for the firm, this is not affected by the firm itself, so that the firm could make it horizontal, but by the consumers. So, why would the demand for a firm change (increase to infinite), i.e. why would consumers leave other firms and buy from this firm in question, if all other firms have the same price? Consumers don't have any incentive to do this. So, the demand for the firm in question shall not change. And, as the product is homogeneous and not differentiated, it is reasonable to assume that the total demand is equally distributed among the firms (for each price), which exactly my new approach does.
Dear colleagues,
So far my research about the fundamental mistakes of the conventional (neoclassical) theory is based mainly on its wrong perception for the price taking and the horizontal demand curve for the firm. Despite the great readability and vivid interest this research has caused, I feel some reluctance regarding the acceptance of the revised theory and perhaps even difficulties in its understanding, which is physiological due to addiction to traditional theory. For this reason, my new article demonstrates these mistakes of conventional theory by using its own methodology, without getting involved in the controversial issue of the horizontal or sloping demand curve for the firm:
Article The Disproof of Neoclassical Theory by Means of Its Own Means
Dear Olatunji,
I did not undrerstand the meaning of your question. Could you, please, be a little more specific?
@ Dimitrios, Since we have encountered challenges with the Neoclassical theory, what options do we have?
Dear Olatunji,
If I have understood what you mean, this depends on us, the academic community of economists. If we are convinced about the correctness of the new theory, then we can establish the correct theory in place of the wrong one. It is a matter of science, and not of policy or any other intentions.
Neoclassical theory must stop being taught in universities in the way it is taught, simply because it is not true and leads to fallacious conclusions about how economy works, the distribution of income, the optimization of everything (social welfare, economic efficiency, etc), things that distort reality and do a disservice to the society.
The theoretical (beyond practical or empirical) mistakes that exist in this theory are proven indisputably, and by using its own assumptions and methodology, in my paper:
Article The Disproof of Neoclassical Theory by Means of Its Own Means
