Subjectivism and Economic Analysis: Essays in memory of Ludwig ...

RADICAL SUBJECTIVISMconsidered as ‘hard core’ Austrian. She points to a widely agreedopinion on the assumption of perfect knowledge used in neoclassicaleconomics as heading the list of commonly shared beliefs amongAustrian scholars:Austrians agree with neoclassical economics that humanbeings attempt to act rationally to achieve their purposes.However, because human action always takes place in timeand always under conditions of partial ignorance about thepresent and total ignorance about the future, a theory ofmarket processes can be neither static in nature nor based onthe assumption of perfect knowledge. Nor is rationalignorance a promising assumption for Austrians who denythat all the relevant future states of the world are listable bythe choosing agent.(163, my italics)Given that perfect knowledge is obviously not a common assumptionin most modern economic theory, the real meaning of rationalignorance deserves closer investigation. Austrian economics, Vaughnstresses, ‘cannot usefully be considered merely a variation on theeconomics of rationality and constrained maximisation’ (162). Thisstatement accounts for her position, which is critical of Kirzner’sideas and supportive of Lachmann’s. But the main question that theanalysis of the two different positions leaves open is the following:what does rational ignorance really mean?If one looks at the theory of decision adopted by mainstreameconomic theory for the last forty years, things appear to be plain.The theory of economic decisions has been based—starting fromSavage’s definition of states of nature—on Bayesian decision theory,which requires that the possible events must be ‘listable’ and thattheir (subjective) probabilities of realisation add up to unity. Indeed,the basic assumption of decision theory under uncertainty is thateconomic agents know with certainty the domain of theiruncertainty. This is of course not a theoretically appealingassumption if one is interested, as the Austrians are, in ‘themes suchas the importance of dynamic growth and development, thegeneration and function of knowledge in economic action, theuncertainties associated with processes in time and the pivotalimportance of diversity and heterogeneity in economic life’ (162).But one should notice that in recent years some perceptivemainstream theorists have shown that they share with the Austrians129