Economic theory. The axiomatisation of homo oeconomicus

Abstract

One of the main aspirations of the science of economics throughout history has been the formal modelling of its theories. This desire has led to approaches including William Petty’s political arithmetic, William Jevons ’ marginal calculus and the general equilibrium of Leon Walras. The greatest achievements in this field, however, occurred during the second half of the twentieth century, largely thanks to the work of mathematicians like Kenneth J. Arrow and Gérard Debreu. The pair of them formalised the Walrasian general equilibrium and the rational behaviour of economic agents via certain self-evident axioms and assumptions from which all their theorems followed by deduction. During this modelling process, selfishness was axiomatised largely through the assumption of greed. However, logical/formal limits to the axiomatisation of economics emerged, together with a considerable deficit with regard to empirical reality. The aim of this chapter is to show some of the formal and empirical limits of axiomatised economics to discern the possibility of building bridges between theoretical modelling and validation with facts.