This academic field builds economic theory from case studies, interviews, and data. It avoids the flawed, abstract assumptions of "rational actors" and "efficient markets" that are common in traditional top-down economic models.

Economic theory is built on the flawed premise of a rational, economically-motivated individual. Financial historian Russell Napier argues this ignores psychology, sociology, and politics, making financial history a better guide for investors. The theory's mathematical edifice crumbles without this core assumption.

Work by Kahneman and Tversky shows how human psychology deviates from rational choice theory. However, the deeper issue isn't our failure to adhere to the model, but that the model itself is a terrible guide for making meaningful decisions. The goal should not be to become a better calculator.

Nobel laureate Robert Solow critiques modern macroeconomic models (DSGE) for being overly abstract and failing to represent an economy with diverse actors and conflicting interests. By modeling a single representative agent, he argues, the field has detached itself from solving real-world economic problems.

Adam Smith is often miscast as the originator of laissez-faire economics. In reality, his work viewed markets as embedded in human-created institutions like law and power structures, a perspective closer to institutionalism than modern neoclassical theory. The phrase "invisible hand" appears only once in his 800-page book.

Post-WWII, economists pursued mathematical rigor by modeling human behavior as perfectly rational (i.e., 'maximizing'). This was a convenient simplification for building models, not an accurate depiction of how people actually make decisions, which are often messy and imperfect.

Economics-based rational choice theory frames decisions as a calculation of "expected utility," multiplying value by probability. This analogizes complex life choices—from careers to partners—to casino bets, oversimplifying non-quantifiable factors and reducing judgment to mere calculation.

Contrary to popular belief, economists don't assume perfect rationality because they think people are flawless calculators. It's a simplifying assumption that makes models mathematically tractable. The goal is often to establish a theoretical benchmark, not to accurately describe psychological reality.

Milton Friedman's 'as if' defense of rational models—that people act 'as if' they are experts—is flawed. Predicting the behavior of an average golfer by modeling Tiger Woods is bound to fail. Models must account for the behavior of regular people, not just theoretical, hyper-rational experts.