The Historical Development of Hierarchical Behavior in Economic Thought

Abstract

One of the basic ideas underlying the established conception of rational behavior is the unlimited substitutability of preferences. Economic agents are assumed to compare and reduce everything to a common denominator: utility. The most obvious example of such preferences can be found in standard consumer theory where complete substitutability of every good is assumed in the sense that a loss of some units of one bundle can always be compensated by gain of some units of another commodity (such preferences are sometimes called Archimedian—see Borch 1968). This conception of preferences has a long history in economic thought and forms the basis of the standard rational choice theory (Hicks and Allen 1934, Samuelson 1938, Hicks 1946, Houthakker 1950).

Material needs and aggregate demand

“…The aggregation problem arises because the micro-level theory, through successive waves of abstraction, has produced a lean theory but without the populationwide commonalities that make aggregation possible. There is a long history of economic thought on hierarchical patterns of consumption (Drakopoulos and Karayiannis, 2004), and continuing interest in other fields, that can be brought to bear. Alfred Marshall helped to remove basic needs from mathematical consumption theory, but also developed a reasonably coherent hierarchical picture of needs that is not very different from contemporary models (Haines, 1982).…”

“…Indeed, Alfred Marshall, one of the early theorists of the current consumption model, proposed a hierarchy of needs (Drakopoulos and Karayiannis, 2004;Haines, 1982). Outside of mainstream economics there has been continued interest in human needs.…”

“…There is a long history within economics of hierarchical, needs-based approaches to consumption (Drakopoulos and Karayiannis, 2004). Indeed, Alfred Marshall, one of the early theorists of the current consumption model, proposed a hierarchy of needs (Drakopoulos and Karayiannis, 2004;Haines, 1982).…”

Hierarchical Needs, Income Comparisons, and Happiness Levels

“…Today, the idea of needs hierarchy can be found in social sciences such as psychology, politics and sociology (see for instance, Ardrey, 1970;Doyal & Gough, 1984;Levi, 1986;Tversky, 1969 Drakopoulos, 1994;Drakopoulos & Karayiannis, 2004).…”

The paradox of happiness: towards an alternative explanation

“…Furthermore, although it has not made a substantial impact to the established contemporary theory of choice, a number of economists like Little, (1957), Encarnacion (1964), Georgescu-Roegen (1966), Chipman (1971, Day (1971), Gorman (1971), Earl (1986), Falkinger (1990), Pfouts (2002, Lavoie (2004) and others have discussed hierarchical-type preferences (for a review see Drakopoulos, 1994;Drakopoulos and Karayiannis, 2004).…”