Economic man and his social preferences

Most economists, at least when confronted with the issue, would agree that strict selfishness cannot be taken literally as a universal description of the economic agent. For markets to be fully competitive, agents can only be selfish within certain bounds, e.g. they have to respect basic property rights. Also, most employment relationships rely on mutual trust and cooperation. Yet, the selfish, or self-centered, agent has been the fundamental behavioral assumption in mainstream economics throughout the 20th century. It is still the dominant explanation of human motivation. Until recently, relatively little attention in mainstream economics has been given to understanding what the bounds or institutions limiting selfishness are, how they have come about and differ across economies. Kuhn (1970) uses the term “paradigm” for the general laws, fundamental assumptions and applied techniques that are shared by the scientists within a scientific program. A paradigm, being the fundamental common framework naturally escapes a precise characterization. However, in my view, the strictly self-centered economic man is part of the neoclassical paradigm; it is a fundamental assumption which is shared by the larger community of mainstream economists. Another basic behavioral assumption is that agents are rational. By this, most economists essentially mean that an agent’s choices, i.e., actions, are consistent. More precisely, choice is rational if, given the constraints facing the agent, it is determined by a rational set of preferences and beliefs. Neoclassical economics builds on an axiomatic model of human motivation which, despite their exogeneity, imposes a relatively rigid structure on preferences. In itself this structure is a defining characteristic of rationality the way economists use it (Hausman and McPherson 1996). The axiomatic approach is closely linked to the commitment to mathematics as the language within which economic theories are formulated. The axioms imply that the preferences can be represented by a single-valued function, mea-