Question

One often hears the criticism that expected utility maximization does not describe the mental processes or the heuristic procedures by which people make decisions. Hence, expected utility maximization is a bad model of human behavior. What is the economist’s reply to this criticism?

Answer 1

It is true that Utility Maximization faces a lot of criticism as it doesn't include the behavioural aspect. It also faces slack as there is a lot of intricacy involved in the process and if we take the wrong utility function, the whole process goes wrong. Also, a consumer going to the market might not think in terms of price and budget constraint if he has a bias towards a good or a brand. However, despite the limitations, utility Maximization model is the only model that brings us closer to estimate the choices that a rational consumer would make. There is no doubt, that exceptions would always be there, however, in literature this is the only praiseworthy model available to draw inferences about the consumer choices. So not everyone in the market would behave in the way as we get the results but therre would be some consumers who would behave rationally according to the utility Maximization theories and it is important to have does inferences than no data at all.