An Essay on the Origin of the Rational Utility Maximization Hypothesis and a Suggested Modification
The rational utility maximization hypothesis (RUMH) was not always a part of economics. Most Classical economists believed that people are influenced by passions as well as by reason. The RUMH became a central part of economics when mathematics became a primary tool of analysis. This was not a coincidence, as the change in method led to the ascendancy of the RUMH. Motivated by recent experimental evidence, it is suggested that the marginal trader hypothesis be invoked to allow a modification of the RUMH: When arbitrage is possible, only a small fraction of market participants need be assumed rational.
Volume (Year): 23 (1997)
Issue (Month): 1 (Winter)
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