Stabilizing Consumer Choice: The Role of 'True Dynamic' Stability and Related Concepts in the History of Consumer Choice Theory

Abstract

It is often argued that the inability of Arrow-Debreu general theory to produce an adequate proof of the of the Walrasian price adjustment mechanism was one of the program's most significant failures (a failure that is directly related to the infamous Sonnenschein-Mantel-Debreu results on aggregate excess demand functions). This paper will not question this standard interpretation of the history of general theory, but makes the case that characterizing the stability question in terms of market - in particular the of the price vector in Walrasian general model - actually helped to stabilize the standard model of consumer choice in general theory and elsewhere within microeconomics. The problem of the of consumer's equilibrium was much discussed early in the twentieth century and it has recently re-emerged in a different guise as the endowment effects and path dependencies of contemporary experimental and behavioral economics, and yet it disappeared from mainstream discussion during the period 1950-1980. This paper argues that shifting the discussion from the intra-agent of the individual consumer to the inter-agent of the competitive market contributed - despite its ultimately negative impact on general theory - to the long period of stable normal science consumer choice theory enjoyed during the middle of the 20th century. The paper ends by considering some of the implications of this interpretation of the history of the literature.