Using Psychology to Reinforce the Austrian Argument for Freedom: The Case of Loan Decisions

The emphatic statements of F. A. Hayek, and other members of the Austrian school of economics, in advocacy of a free society have produced much misgivings among the economics profession. The paper aims to make the Austrian views more intelligible by tracing them back to a theory of the mind that Hayek develops in The Sensory Order. More generally, the paper argues that Austrian economics would greatly benefit from extending itself from a pure logic of choice toward psychological analysis. The argument is illustrated throughout the paper by examples taken from the loan decision process of a banker.