Constrained Optimization or Observation? On What Economists Take as Primary

Economists differ on what they take as primary when constructing the problem of a rational economic order: constrained optimization or observation. The general starting point is to frame the problem with four key assumptions—scarcity, fixed preferences, complete information, and self-interest—so that the optimization problem yields a clear prediction. Observation enters only after the fact, to repair the model when predictions fail. F. A. Hayek and Vernon Smith instead begin with what people actually know and do, making observation primary to economic inquiry. Humanomics extends this stance by grounding human conduct in Adam Smith’s astute observations on fellow-feeling, moral sentiments, and a sense of propriety. Economics as an observational science takes human conduct, not constrained optimization, as primary.