Methodological Individualism: True and False

2009 marks the centenary of methodological individualism (MI). The phrase was first used in English in a 1909 paper by Joseph Schumpeter in the Quarterly Journal of Economics. Yet after 100 years there is considerable confusion as to what the phrase means. MI is often invoked as a fundamental description of the methodology both of neoclassical and Austrian economics, as well as of other approaches, from New Keynesianism to analytical Marxism. However, the methodologies of those to whom the theoretical practice of MI is ascribed differ profoundly on the status of the individual economic agent, some adopting a holistic and some a reductionist standpoint. My purpose is to uncover and evaluate some of the meanings of the phrase 'methodological individualism'. The paper considers the contributions of Mises and Hayek, concluding that they based their methodological stance on fundamentally different ontologies, with Mises building on the reductionism of previous writers such as Schumpeter and Menger, and Hayek, on the contrary, adopting a holistic ontology more in line with Adam Smith, Marx and Keynes. From an ontological perspective this seems to leave Hayek as something of an outlier in the Austrian tradition.

An underappreciated aspect of F.A. Hayek’s mature views about rationality is the inter-relation of the “pure logic of choice” and rule-following behavior. Sometimes it is asserted that Hayek abandoned his earlier understanding of individual rationality and replaced it with a completely rule-oriented conception of decisionmaking. In fact, however, the analysis in Hayek’s Sensory Order gives us the framework in which the relative roles of explicit choice-logic and rule-following can be discerned. Furthermore, this framework also shows that his fundamental conception of individual rationality is pragmatic, contextual, modifiable, and ecological. While standard neoclassical economists were axiomatizing the explicit logic of choice, Hayek was decades ahead of these economists in understanding the nature of decisionmaking outside of completely artificial worlds in which there are no cognitive limits and in which the structure of the environment is simple. This article attempts to lay the foundation for an integrated understanding of Hayek’s pragmatic rule-following rationality and the “ecological rationality” of Gerd Gigerenzer and other researchers.

SSRN Electronic Journal, 2015

An underappreciated aspect of F.A. Hayek's mature views about rationality is the interrelation of the "pure logic of choice" and rule-following behavior. Sometimes it is asserted that Hayek abandoned his earlier understanding of individual rationality and replaced it with a completely rule-oriented conception of decisionmaking. In fact, however, the analysis in Hayek's Sensory Order gives us the framework in which the relative roles of explicit choice-logic and rule-following can be discerned. Furthermore, this framework also shows that his fundamental conception of individual rationality is pragmatic, contextual, modifiable, and ecological. While standard neoclassical economists were axiomatizing the explicit logic of choice, Hayek was decades ahead of these economists in understanding the nature of decisionmaking outside of completely artificial worlds in which there are no cognitive limits and in which the structure of the environment is simple. This article attempts to lay the foundation for an integrated understanding of Hayek's pragmatic rule-following rationality and the "ecological rationality" of Gerd Gigerenzer and other researchers.

The Review of Austrian Economics, 2015

The article investigates the connections between Hayek's cognitive psychology and his methodological individualism. It argues that Hayek's theory of the sensory order, which is his less-studied scientific contribution, supports an original but largely unknown argument in favour of the Verstehen approach of methodological individualism. Hayek merges a theory of the temporality of knowledge as understood by phenomenological hermeneutics, and notably by Gadamer, with a proto-connectionist theory of mind to develop a perspective that anticipates by decades Varela's and Maturana's neurophenomenology. The article shows that Hayek uses this perspective to criticize the deterministic paradigms of action that consider action to be a mechanical effect of a pre-given reality and challenge the Verstehen approach, which is defended both by methodological individualism and phenomenological hermeneutics.

Encyclopedia of Philosophy and the Social Sciences, 2013

This entry explicates Hayek's social epistemology, an epistemology that gives due consideration to both the workings of the individual mind and the mechanics of the ambient sociality in which mind is enmeshed. On Hayek's account, mind and sociality are coevolved connectionist-like systems, the latter scaffolding the inherently constrained mind, thereby significantly reducing the epistemic transaction costs involved in the harvesting of knowledge. Hayek's most abiding philosophical insight is the idea that "perfect" knowledge is unnecessary, impracticable, irrelevant and, indeed for these very reasons, its indiscriminating pursuit can be pernicious. Hayek's specific targets were two species of "rationalism": central planning (favored by collectivism) and the abstract individualism of homo economicus (favored by orthodox economics). According to Hayek, these rationalisms fail miserably to appreciate that cultural complexity offers both the fabric of possibility and of inherent constraint. If one understands sociality to be a complex and necessarily

1994), Hayek, Co-ordination and Evolution: His legacy …, 1994

Many of the institutions on which human achievements rest have arisen and are functioning without a designing and directing mind . . . the spontaneous collaboration of free men often creates things which are greater than their individual minds can ever fully comprehend'.

Journal of Philosophical Economics

In social sciences and, in particular, in economics the debate on the most adequate model of explanation of social phenomena has been centred around two models: Methodological Individualism and Holism. While Methodological Individualism claims to be the most rigorous attempt to explain social phenomena by reducing them to their ultimate components, Holism stresses the primacy of the social relation, outside of which individuals cannot be understood as analytical units. In the analysis, we will refer to the way the debate has influenced economics education too through the debate on microfoundations and the role of individual preferences. In synthesis, we aim to show that the two explanatory models, rather than being opposed, need to be integrated, because they need each other. But for this to be done, we need to reflect on the role that the concept of “relation” plays in our understanding of the social structure and of the dynamics that characterises it. Indeed, the holistic-systemic...

Journal of Economic Methodology, 2011

On a few occasions F.A. Hayek made reference to the famous Gödel theorems in mathematical logic in the context of expounding his cognitive and social theory. The exact meaning of the supposed relationship between Gödel's theorems and the essential proposition of Hayek's theory of mind remains subject to interpretation, however. The author of this article argues that the relationship between Hayek's thesis that the human brain can never fully explain itself and the essential insight provided by Gödel's theorems in mathematical logic has the character of an analogy, or a metaphor. Furthermore the anti-mechanistic interpretation of Hayek's theory of mind is revealed as highly questionable. Implications for the Socialist Calculation Debate are highlighted. It is in particular concluded that Hayek's arguments for methodological dualism, when compared with those of Ludwig von Mises, actually amount to a strengthening of the case for methodological dualism.