The behavioral foundations of Austrian economics

Behavioral and experimental economics present challenges to the neoclassical theory of individual behavior, which is based on individuals making choices within the framework of utility functions that are assumed to have certain well-defined characteristics. Results in behavioral and experimental economics have shown that it is common for individual behavior to systematically deviate from the neoclassical axioms of utility maximization. Austrian economics is also based on axiomatic theories of utility maximization, but the assumptions underlying utility-maximizing behavior are much weaker in the Austrian approach. As a result, they have more solid behavioral foundations and are less subject to challenge by the empirical findings of behavioral and experimental economics. Neoclassical policy conclusions are often overly strong because of its behavioral foundations which are challenged by behavioral and experimental economics and are often misleading because of the comparative static nature of neoclassical welfare economics. For purposes of policy analysis, the Austrian approach provides better insights because of its more realistic behavioral foundations.