Name

: Senzo Fortune Mokoena

Topic: To what, if, any does a multi paradigm approach enhance economic analysis

Introduction

This paper seeks to determine whether multi paradigm approach enhance economic
analysis. Multi paradigm approach entails the integration of other disciplines in
economics in order to do economic analysis. According to Hodgson (1994), the
relationship between economics and sociology is due to development old
institutional economics. Furthermore old institutional economics is used in this
paper to determine whether multi paradigm approach enhance economic analysis.
Thus, old institutional economics has incorporated other disciplines such as history,
psychology and sociology in order to study and analyze societal behavior. According
to Arvanitidis (2004), old institutional economics view socio- economy as an
integrated system which includes socio- cultural institutions. Furthermore societal
cultures and informal laws shape individual preferences and regulate actions of
individuals . Old institutionalism is based more on the role of the society in defining
values , formal institutions without denying of course the intention and feedback
processes between the individual and society(Paranda,2002). Furthermore,
Arvanitidis (2004) document that human rationality in old institutional economics is
embodied in a socio cultural and historical process. Thus, according to Hodgson
(1999), old institution economics has integrated with psychological, sociological in
order to determine how individuals behaves within the society.
old institutional economics always underlies the role of habits, norms and
institutions play in directing human behavior without discarding some rationality in
individual behavior but constrained by social and economic environment (parada,
2002, pg 45). Furthermore, according to Hodgson (1999), societal habits are
significant for both micro and macroeconomic analysis. Thus, old institutional
economics focus much on the behavior of the entire society other than individual
behavior. Using other disciplines from other fields such as sociology, psychology and
history can enhance economic analysis. According Barron and Hannan (1994), old
institution economics did not define economics in terms of elements, factors or
aspects of human behavior, rather than using terms of a department of social life.
This paper is structured as follows, section 1 outlines the methodology of old
institutional economics, section 2 the significance of rules and habits , section 3 is
the approach to economic analysis, section 4 is the significance of multi paradigm
approach to economic analysis and section 4 concludes the assignment.
Section 1: Methodology
Due to a number of development in both economics and sociology, the
relationship between the two disciplines has become an important issue in
contemporarily social science (Barron and Hannan, 1994, 1111).Furthermore,
institutional economics is an important tool that is used to understand societal
behavior. Thus, old institutional economics use certain tools to analyze the
economy, this includes various methods that are used to examine and understand
the behavior of individuals within the society. Moreover, Parada (2002) outline
varouse methods that are used to study the behavior of individuals within the

Society, the methods include antiformalism, inductive and holism.Old institutional

economics underlines the role that habits ,norms and institutions play in directing
human behavior, without discarding some rationality in individual behavior but
constraint by social and economic environment( Parada,2002,45). Thus, multi
paradigm approach in old institutional economics is the -useful tool used to
understand individual behavior within the society because it comprise other
disciplines from other fields such as sociology, psychology and history for economic
analysis.

(a)Holism
Old institution economics focus on the behavior of the entire society other than to
individual behavior for economic analysis. Furthermore holism entails that when
economic analysis is conducted, societal preferences and actions are taken in to
consideration. According to Rutherford (1994), individual behavior is influenced by
the society. Thus Old institutional economics is holistic because it is focused on
causal relations the whole and its parts (Petranovic and Stefanovic, 2009, Pg 107).
Moreover, causal relation entails the relationship between the society and
individuals for economic analysis. According to Osterlynch (2013), Holism entails the
study situations in a comparative way in order to support collective actions and
policy making. Moreover old institution economics focuses on the consideration of
economic system by examining the formation and functioning of institutions as part
as wider economy, political, legal and societal cultural environment which they
operate (Hodgson, 1988, pg. 166).
(b)Anti-formalism
Old institutionalism is largely anti formalism, holism, behaviorist, collectivist and
interventionist(Udehn, 2001,Pg 256). Furthermore, old institutional economics use
theories in order to explain economic behavior, various theories used by old
institutional economics are formed through incorporating other disciplines in
economics such as history, sociology and psychology in order to explain economic
behavior. According to Parada (2002), old institutional economics presents theories
in an informal way, it includes the use of societal norms, cultures etc. In old
institutional economics individuals are not seen a rational decision makers ,
however the entire society regulates individual preferences and actions through
enforcing norms, informal laws, culture etc. thus the notion that individual tastes
and preferences are moulded by circumstances
is frequently criticized as
concession to structural or cultural determination ( Hodgson, 2009, Pg5).
(c) Inductive
According to Rutherford (1994), old institutionalism entails that the entire society is
more than a mere aggregation of autonomous individuals. Furthermore, inductive

methods explain individual preferences and behavior within the society through the
use of theories. According to Paranda (2002), old institutional economics is linked to
inductive method to explain societal behavior. Thus, old institution economics is not
linked with the use of abstact language such as mathematical models to explain
economic and societal behavior. However Old institution economics relies more,
although, not exclusively on comparative method, which uses case studies to create
an ethnographic which generalizations are derived ( Stanfied,1999, Pg 136).
Section: 2 the necessity of rules and habits within the society
Institutions are ways of thought, prevailing or permanent activities contained in
habits and customs(Rutherford, 2001, Pg174). According to Commons (1961),
institutions are durable and integrated with customs and habits. Thus Individual
habits and rules within the society support the tools and instruments that are used
to analyze the economy, in old institutional economics the incorporation of other
fields such as psychology, sociology and history in economics plays a major role in
order to examine individual behavior within the society. Thus Human behavior is
largely influenced by economic, political, social and cultural framework (Arvanitidis
2004, Pg 332). Cultural framework entails informal rules that are used to regulate
individuals within the society. The fore, Old institutional economics use disciplines
from other field of study in order to expand economic analysis such as to study
societal behavior. Empirical evidence show that customs and norms influence
economic behavior. Moreover, Petrovic and Stefanovic (2009) noted that consumer
behavior reflects norms and habits of the society.
The role of rationality in rules followed by society
Old institution economics always underlines the role of habits , norms , institutions
play in directing human behavior, without discarding some rationality in individual
behavior (Parada, 2002, Pg 45). Moreover, old institution economics rejects the
notion that individuals within the society are rational decision makers. According to
William (1985), in old institutional economics individuals are not seen as utility
maximizers but are subject to bounded rationality. This is due to the restrictions that
are imposed by the society such as societal norms, culture. Hence, the society
determines individual behavior through enforcing societal values, norms. For an
example, individuals are only allowed to do in a certain way within the society, thus
old institutional economics rejects the notion of neoclassical that stipulates that
individuals are rational decision makers.

Section: 3 Institutional approach to economic analysis

The institutional approach moves from general ideas concerning human agency ,
institutions and the evolutionary nature of economic processes to specific ideas
and theories , related to specific economic institution on types of economy

( Hodgson, 1998, Pg 168). Thus, economic analysis in old institutional economics is

done through applying disciplines such as sociology, history and psychology.
Sociology as a discipline is crucial to the study of societal preferences and behavior.
Moreover, History demonstrates that ideas , ideologies , myth , dogmas, and
prejudices matter; and understanding of the way they evolve is necessary for
further progress in developing a framework to understand societal change(North,
1994, Pg 363). Thus, institutional approach to economic analysis entails multi
paradigm approach because it has incorporated various disciplines to institutional
economics in order to analyze economic behavior.

What can institutional approach contribute to improve our understanding of past

economic performance?
Given the institutional approach to economic analysis, North (1994) outlined two
ways in which institutional approach can contribute in order to improve our
understanding of past economic analysis, firstly institutional approach should
explain the remarkable regularities of history, and secondly institutional -approach
should contribute to our understanding of institutions of the overall of economic
change. Thus, multi paradigm approach to such an extent is necessary to alert
people regarding past economic performance.

Section 4 : The essence of multi paradigm approach to economic analysis

Old institutional economics are an historical and evolutionary outcome where
rational man is a simplistic and misleading picture of human behavior and where
markets are not eternal feature of society ( Parada,2002,Pg49). Thus, the society
determines actions of human beings within the society. Furthermore, according to
Bell (2013), institutions matters because laws and customs play a pivotal role in
order to shape individual behavior. As a result, customs, societal norms and laws
regulates the society concerning individual preferences and actions. The essence of
multi paradigm approach emphasizes the way in which old institutional economics
operates.
Moreover, Hodgson (2000) noted the essence of multi paradigm
approach as follows(a) Institutionalism makes extensive use of ideas and data from other disciplines
such as sociology, anthropology in order to enhance richer analysis of
institutions and human behavior.
(b) The notion of individual utility maximization is regarded as in adequate, thus
individuals are influenced by their institutional and cultural settings.
(c) Institutions are key determinant for the economy.
(d) In old institutional economics ,the economy is an open system embedded in
social , cultural and political

Does multi paradigm approach enhance economic analysis?

Old institutionalism also rejects individualistic welfare criteria and are more
interventionist, favoring greater government involvement to correct institutional
failures (Rutherford, 196, Pg 4). Thus, sociology, history and psychology form the
multi paradigm approach to study the economic performance. As a result, multi
paradigm approaches enhance economic analysis. For an example, through
enforcing norms, culture to individuals within the society. According to Hodgson
(1998), multi paradigm approach is interdisciplinary to recognize rudiments from
politics, sociology, psychology and other resources.
It is assumed that individual actions lead to the formation of institutions, but
institutions do not change individuals other than supplying information or
constraints (Hodgson, 1993, Pg 8). Thus, information that is supplied by
institutions is significant for economic analysis. Furthermore, individual behavior
within the society is crucial for the formation of institutions. According to North
(1981), institutions are set of rules, behavioral norms designed to restrict individual
behavior in the interest of maximizing the wealth and utility of principals.
Furthermore, the incorporation of other disciplines in institutional economics such as
history, sociology and psychology has an impact to enhance economic analysis.
Conclusion
Given the multi paradigm approach as a method that incorporated other disciplines
such as history, sociology and psychology in the context of old institutional
economics. Empirical evidence shows that multi paradigm approach is a necessary
method for economic analysis. Moreover, this paper elaborates much regarding the
necessity and habits of individuals, the essence of old institutional economics. Thus,
old institutional economics rejects the notion of individual rationality. However, it is
noted by various authors that old institutional economics focus much to the society
than to the individuals. As a result to such an extent multi paradigm approach
enhance economic analysis because it serves as a powerful instrument that is used
to regulate and explain societal behavior.

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