Heterodox economics includes the methods and theories outside mainstream economics. It is an umbrella term that links various schools of economic thought, many of which have little agreement with each other. One common criticism, however, is that the neoclassical synthesis—a combination of previous economic theories—is inherently inaccurate. Another heterodox criticism is the methodology used by other economists. Many heterodox economists reject rational choice theory, the assumption that individual choices will reflect rational decisions.
The term heterodox connects hetero “different” and –dox from orthodox. Literally, heterodox economics means “different from orthodox economics.” Heterodox economists disagree with one or more central tenants of mainstream economic thought.
Mainstream economics, the economics accepted by a majority of economists, is a combination of previous economic theories. Neoclassical economics focuses on free markets that will achieve efficiency through supply and demand. Keynesian economics, named after British economist John Maynard Keynes, maintains that a significant amount of government intervention is necessary for economic efficiency. Modern mainstream economics is largely a combination of elements from these two theories.
The mixture of neoclassical and Keynesian economics had been dubbed the neoclassical synthesis. Specifically, neoclassical theories are applied mostly to microeconomics, the study of individual decisions in an economy. Keynesian economics, on the other hand, is mostly applied to macroeconomics, the study of an economy as a whole. Many theorists in the school of heterodox economics reject some or all of the neoclassical synthesis. They claim that it places constraints on a fuller understanding of economic activity.
Many heterodox economists criticize the methodology of mainstream economics. At issue may be the definition and scope of economics itself. Economics is inherently difficult to draw a line around because it is so interconnected with other psychological and social phenomena. Another common subject in heterodox economics is the boundary between experimental and theoretical approaches. In other words, economists disagree over which assumptions about individual behavior can be made without first gathering supporting evidence.
In fact, mainstream economics generally assumes that people will behave as rational agents. This means that they will tend to act in a way that will maximize their material condition and well-being. At issue, however, is how to define a term like “well-being” and whether people actually act in a seemingly rational way all the time. Some schools of heterodox economics challenge the assumption that people make generally rational decisions. Rather, people’s choices are often altered by limited information so as to make them act in seemingly irrational ways.