"Over the past half century, economic theorists have stubbornly held on to their view that economics should be a branch of decision theory that involves optimizing choices along artificially smooth and conveniently specified production and utility functions, subject to constraints."A lot was said in that sentence. Economists were "stubborn" because, despite the continual failure of their models to describe reality, they hold on to assumptions of "artificially smooth" and "conveniently specified" functions. They hold onto these methods because linearity is mathematically tractable (the same critique is sometimes levied on physics).
But clearly we live in a complex world dominated by numerous changing factors. For this reason, it is misleading to think of economics as "a branch of decision theory that involves optimizing choices" and instead one should think about how individuals interact and exchange.
As Armen Alchian concluded in 1954:
"Systems analyses are machines for generating implications of postulated initial information; they do not generate decisions... Under uncertainty, the criterion of decisions is not simple maximizations; the essence of the decision process is to affect the scope of random factors so as to give a “good” probability distribution of outcomes. The insurance principle is to decisions what maximizations are to analytic implications."
His 1950 paper "Uncertainty, Evolution, and Economy Theory" argued that optimal decisions can only be regarded as such after-the-fact through a process of natural selection. Decision problems under uncertainty were solved, he later found, by maximizing the option space available. He agreed with Herbert Simon that one should optimize when one has the necessary information, but an evolutionary "satisficing" method probably more appropriate given the vagaries of our world.
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