Journal of Socio-Economics 32 (2003) 391–409
The arrival of behavioral economics:
from Michigan, or the Carnegie School
in the 1950s and the early 1960s?
Hamid Hosseini
*
Department of Economics and Finance, Kings’ College, 133 North River Street, Wilkes-Barre, PA 18711, USA
Accepted 25 April 2003
Abstract
The essay discusses the rise of (modern) behavioral economics during the last few decades. In con-
trast to Louis Uchitell’s assertion, in his Feb. 11, 2001, NY Times essay, that behavioral economics be-
gan in 1994, I would try to argue that it began during the 1950s and early 1960s, although some aspects
of it had even emerged in the works of Marshall, Wesley Mitchell, J.M. Clark and others, before WWII.
Although contributions of many writers have helped the rise of behavioral economics including
psychologists Kahneman and Tversky, I regard the works of George Katona and Herbert Simon instru-
mental in its rise. While the works of Katona and his colleagues at Michigan University led to the use
of survey method in economics and its utilization in measuring the impact of consumer expectations
on macroeconomic activity, the work of Simon at Carnegie Tech.(a tremendously stimulating intel-
lectual environment for economic theorizing then) resulted in the important theoretical foundations of
behavioral economics, such as the concept of bounded rationality. Interestingly enough, that stimulat-
ing environment also led to the many contributions of Franco Modigliani, M. Miller, and others, and
the start of the rational expectations hypothesis by John Muth—a student of Simon and Modigliani.
The essay also provides the characteristics of behavioral economics, which include the utilization
of the theoretical findings of psychology and other social sciences; its concentration on real observed
behavior of economic agents; its rejection of the simplistic model of rational maximizing agents and its
replacement with Simon’s bounded rationality; and its emphasis on the utilization of an indisciplinary
approach in economics.
© 2003 Elsevier Inc. All rights reserved.
Keywords: Conventional economics; Behavioral econ; Survey method; Rationality; Bounded rationality;
Rational expectations hypothesis; Empirical studies; Satisfying; Experimental econ; Consumer survey;
Interdisciplinary approach; Counterpart analysis
Prepared for the 2001 Conference of the History of Economic Society, Winston-Salem, NC.
*
Tel.: +1-717-826-5900x5696.
E-mail address: hshossei@kings.edu (H. Hosseini).
1053-5357/$ – see front matter © 2003 Elsevier Inc. All rights reserved.
doi:10.1016/S1053-5357(03)00048-9