ABSTRACT
Kenneth Arrow [1986, p. S388] The assumption of rationality has been a visible part of all versions of economics and economic theory since Adam Smith’s eighteenth century. An explicit maximization hypothesis has been the hallmark of neoclassical economics since the end of the nineteenth century and might easily be seen to be the one major departure that distinguishes neoclassical from classical economics. It can be further noted that today the assumption of rationality is usually invoked to represent a presumed psychological process whereas maximization seems only to be a convenient assumption used to ‘close’ a model (e.g., make it possible to logically derive and thereby explain the existence of a set of prices that would clear all markets).
