13
That is why a major part of the new cutting-edge work is going beyond these
assumptions; while it does not deny the usefulness and insight provided by that model, it
does not see a model based only on these assumptions as sufficient, and is therefore
pushing the envelope on each of those assumptions. Some examples of how cutting edge
work is questioning these neoclassical assumptions would be the following:
• Cutting edge economics researchers are expanding the meaning of rationality
to include a much broader range of agent actions that reflect actual actions; in
the new approach, individuals are purposeful (incentives still matter) but are
not necessarily formally rational. The new research considers the behavioral
foundations of actions, using experiments to determine what people actually
do, rather than simply basing their arguments on what people rationally
should do.12 The work in game theory by such economists as Peyton Young
(1998) is pushing rationality to its limits to demonstrate the importance of the
expectations and information environment in people’s decisions. The cutting
edge work that is being done here is going beyond the traditional definition of
rationality, with extended versions of Herbert Simon’s bounded rationality
increasingly being accepted.
• Other cutting edge researchers are moving away from a narrow view of
selfishness. While textbook economics generally presents a view of agents
who care only about themselves, the new work is trying to come to grips with
12 This work is beginning to integrate work in psychology such as John Payne et al (1993), which has used
experimental methods to analyze choice and to see how people actually make decisions, rather than just
assume “rationality.” This work has found that context matters to a much greater extent than have been
integrated with work in behavioral economics.