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An Essay on the Origin of the Rational Utility Maximization Hypothesis and a Suggested Modification


  • Ken McCormick

    (University of Northern Iowa)


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.

Suggested Citation

  • Ken McCormick, 1997. "An Essay on the Origin of the Rational Utility Maximization Hypothesis and a Suggested Modification," Eastern Economic Journal, Eastern Economic Association, vol. 23(1), pages 17-30, Winter.
  • Handle: RePEc:eej:eeconj:v:23:y:1997:i:1:p:17-30

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    References listed on IDEAS

    1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
    2. Richard Baldwin, 1993. "A Domino Theory of Regionalism," NBER Working Papers 4465, National Bureau of Economic Research, Inc.
    3. Levy, Philip I, 1997. "A Political-Economic Analysis of Free-Trade Agreements," American Economic Review, American Economic Association, vol. 87(4), pages 506-519, September.
    4. Panagariya, Arvind & Findlay, Ronald & DEC, 1994. "A political - economy analysis of free trade areas and customs unions," Policy Research Working Paper Series 1261, The World Bank.
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    JEL classification:

    • B10 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - General
    • B21 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Microeconomics
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory


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