Neoclassical Economics Has NOT Changed Much Because It Conceives of TIME in Static, NOT Dynamic, Terms

In a certain respect, neoclassical economics has not changed much in the past 50 years. Many of the recent “innovations” in theory simply extend the static maximizing apparatus to allegedly dynamic issues. In  particular, time is still most frequently conceived in purely static terms. As such, it is analogized to space: Just as an individual may allocate portions of space (land) to certain purposes, he can also allocate portions of time to certain activities. In principle, time and perfect predictability are compatible. The dynamic conception of time, on the other hand, is time perceived as a flow of events. Implicit in this idea of a flow is that of novelty or true surprise. The individual’s experience of today’s events itself makes tomorrow’s perceptions of events different than it otherwise would be. As an individual adds to the stock of his experiences, his perspective changes and so both the present and the future are affected by the past flow of events. Flows, however, are continuous, and hence the individual’s perspective changes right up to the moment of any experience. This renders perfect prediction of the experience impossible. Since all individuals are similarly affected, and since, as we have seen, the consequences of an individual’s course of action depends on what others will do, this idea of time has implications for decision-making. Choices made in real time are thus never made with complete knowledge (either deterministic or stochastic) of their consequences. The recognition of this fact by individuals is the source of rule-following behavior and, on a social level, of the development of institutions.

—Gerald P. O’Driscoll Jr. and Mario J. Rizzo, The Economics of Time and Ignorance, Foundations of the Market Economy (London: Routledge, Taylor and Francis e-Library, 2002), 2-3.