Revealed preference and economic method

Jane Galt states that surveys are not very useful in political analysis because people lie, the polls are badly designed, and the polls select for a biased population, among other things. She also makes a distinction between stated preference, which is the answer given in polls, and revealed preference, which is the actual action taken. Although Jane is talking about the political realm, her criticism of political metrics such as surveys can be extended into the economic realm under Austrian methodology.

A lot of modern economics deals with metrics - attempts to quantify human behavior in numbers, equations, graph-plotting, survey taking, and curve-fitting. This approach posits that the complex actions and preferences of individuals comprising the market can be mathematically modeled. Relationship between different variables are drawn, and predictions are made based on past behavior.

Instead, the Austrian approach acknowledges the profound uncertainly of the real world. At any given instance, an individual has a multitude of possible ends he might wish to pursue. He also has divers means in his possession to pursue those ends. Thus, his rank list of valued goods is one of enormous complexity. Add to this the fact that circumstances which result in the state of dissatisfaction that drives human action change from moment to moment resulting in a constant reappraisal and reshuffling of values, along with the multitude of actors in any complex economy makes an empirical approach to studying economics prone to error and faulty in methodology. As Mises said:

The postulates of positivism and kindred schools of metaphysics are therefore illusory. It is impossible to reform the sciences of human action according to the pattern of physics and the other natural sciences. There is no means to establish an a posteriori theory of human conduct and social events. History can neither prove nor disprove any general statement in the manner in which the natural sciences accept or reject a hypothesis on the ground of laboratory experiments. Neither experimental verification nor experimental falsification of a general proposition is possible in its field.

As the Austrian school has its basis in praxeology, the study of human action, it deals exclusively with revealed preference. Thoughts, feelings, and motivations change from moment to moment and are outside its scope. What praxeology studies is action, which reveals preference. By taking a certain action, an individual reveals that at that moment, out of all possible actions he can potentially take, he has the highest preference for the action actually taken using the means at his disposal, which always includes time as one of those means. Built on the foundation of the action axiom, a priori deduction is used to reach further conclusions, and logical extension is carried even further to fill the scope of economic theory from the ground up.

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