The dynamic temporal sequence and reflexive adjustment behavior: Foundations for a behavioral alternative to optimization theory
Abstract
Abstract: This paper discusses the difference between mainstream and heterodox economics in terms of philosophy’s distinction between two types of temporal sequences governing events: the static, truth-tenseless before-after sequence and the dynamic, truth-tensed past-present-future sequence. Mainstream theory and optimization analysis employs the first. However, Aristotle showed long ago this implies fatalism. Heterodox explanations employ the second, which I argue implies people reflexively adjust their choices over time in a combined backward-looking and forward-looking way that rules out optimization. Central to this explanation of behavior is how uncertainty about the future is connected to uncertainty about the past. I show this can be explained in terms of how people engage in counterfactual thinking whereby their uncertainty about the future is investigated through how they re-examine their uncertainty about the past. This behavioral explanation affects how we interpret two different sets of temporal phenomena heterodoxy emphasizes: (i) irreversibility and path-dependence and (ii) emergence and cumulative causation. I argue this demonstrates the need for the open economic thinking heterodoxy employs, not the closed economic thinking the mainstream employs.