In the social sciences, methodological individualism is the principle that subjective individual motivation explains social phenomena, rather than class or group dynamics which are illusory or artificial and therefore cannot truly explain market or social phenomena. This concept was introduced as an assumption in the social sciences by Max Weber, and discussed in his book Economy and Society.
In neoclassical economics, people's behavior is explained in terms of rational choices as constrained by prices and incomes. The neoclassical economist accepts individuals' preferences as given. Gary Becker and George Stigler provide a forceful statement of this view:
- On the traditional view, an explanation of economic phenomena that reaches a difference in tastes between people or times is the terminus of the argument: the problem is abandoned at this point to whoever studies and explains tastes (psychologists? anthropologists? phrenologists? sociobiologists?). On our preferred interpretation, one never reaches this impasse: the economist continues to search for differences in prices or incomes to explain any differences or changes in behavior.
Economist Mark Blaug has criticized over-reliance on methodological individualism in economics, saying that "it is helpful to note what methodological individualism strictly interpreted [...] would imply for economics. In effect, it would rule out all macroeconomic propositions that cannot be reduced to microeconomic ones [...] this amounts to saying goodbye to almost the whole of received macroeconomics. There must be something wrong with a methodological principle that has such devastating implications".
Similarly, the economist Alan Kirman has critiqued general equilibrium theory and modern economics for its "fundamentally individualistic approach to constructing economic models", and showed that an individualist competitive equilibrium is not necessarily stable or unique. However, stability and uniqueness can be achieved if aggregate variables are added, and as a result he argued "the idea that we should start at the level of the isolated individual is one which we may well have to abandon".
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- Kenneth J. Arrow (1994), "Methodological Individualism and Social Knowledge," American Economic Review, 84(2), pp. 1–9.
- Kaushik Basu (2008), "Methodological Individualism," The New Palgrave Dictionary of Economics, 2nd Edition, New York : Palgrave Macmillan ISBN 978-0-333-78676-5 Abstract.
- Brian Epstein (2009), "Ontological Individualism Reconsidered," Synthese 166(1), pp. 187–213.
- Friedrich A. Hayek (1948), Individualism and Economic Order. University of Chicago Press. ISBN 0-226-32093-6
- Geoffrey Hodgson, (2007) "Meanings of Methodological Individualism", Journal of Economic Methodology 14(2), June, pp. 211–226.
- Harold Kincaid (2008), "Individualism versus Holism," The New Palgrave Dictionary of Economics, 2nd Edition, New York: Palgrave Macmillan ISBN 978-0-333-78676-5 Abstract.
- Steven Lukes (1968), "Methodological Individualism Reconsidered," British Journal of Sociology 19, pp. 119–29.
- Ludwig von Mises, "The Principle of Methodological Individualism", chapt. 2 in Human Action ISBN 9780865976313 Eprint.
- Joseph Schumpeter (1909), "On the Concept of Social Value", Quarterly Journal of Economics, 23(2), February, pp. 213–32.
- Lars Udéhn (2002), "The Changing Face of Methodological Individualism", Annual Review of Sociology, 28, pp. 479–507.