Difference Between Neoclassical And Behavioural Approach

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Introduction Predicting the future of economics is a complex task to perform. First because economists struggle to set a clear definition of it and secondly because of the changing nature of its subject matter. Economic agents are, indeed, not animated by natural law but have rather tendencies. The neoclassical ideology emerged in the 19th century and is now considered as the leading school of economic. The approach is based around the assumptions that economic agents have a perfect rationality and search to maximize their utility in a market to produce an efficient equilibrium. However, the multiplication of economic crisis has made the neoclassical approach to become more and more controversial and seems to raise internal and external…show more content…
In this paragraph, we will take closer look at the different characteristics of both models and analyse to what extent they differ and try to find out if there exists any focal point between them. Is the behavioural approach an alternative of the neoclassical approach or just a simple extension of it? As we have seen before, behavioural theory and neoclassical have different ontologies. Behavioural theory is multidisciplinary approach while the neoclassical one has purely economic perspectives. Moreover, the behavioural approach attempts to innovate in term of producing new theory. Kahneman and Tversky's “prospect theory” (1979, Prospect theory, an analysis of decision under risk) is a descriptive approach to model real-life choices and is considered as the keystone of the new research program. Despite divergences they both address issues with similar concepts. The “utility theory” or the “theory of efficient markets” assume rational choices. The “prospect theory” mentioned above also uses rationality but limited this time. Both models also mostly use the mathematics as analysis tool of the economic system. The behavioural approach proceeds by adding new terms and parameters to form a more complex objective
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