Abstract

This chapter draws on the history of economic thought to elucidate the foundations of the Austrian economics conception of rationality. First, it shows how Austrian subjectivism was originally differentiated from nineteenth-century and early-twentieth-century psychologically based economics. Then it shows how the Austrians differentiated themselves from the behaviorist approach that began to affect economics as early as the 1910s but mainly from the 1920s to the 1950s. Finally, drawing on the work of Friedrich Hayek and Alfred Schutz, it shows that the Austrian conception of rationality is not based on introspection and illustrates the differences between an Austrian approach and that of today’s new behavioral economics.