Abstract

This dissertation examines the role subjective economics has played in advancing the analysis of business firms and it provides a method by which subjectivism can further advance this analysis. In this context subjectivism refers to the various ways of applying the principle that the goal of economic analysis and methodology is to make human action intelligible by employing theories that connect phenomena to the plans and perspectives of economic decision-makers. An analysis of the historical development of economic theories of the firm demonstrates how economists have employed subjectivist insights to advance their understanding of business firm behavior. While providing the basis for many advancements, subjectivism has also created problems for theorists working within the neoclassical tradition. These theories are ultimately rooted in an objectivist perspective that views decision-makers as facing external constraints that operate independently from the interpretations agents may have of their situation. In contrast to the more objectivist-based neoclassical theories, economists in the Austrian School of Economics have a long tradition of recognizing subjectivism as an integral component of human behavior and economic analysis. Building on the work of the Austrian economist Friedrich von Hayek and other subjectivists, I construct a new theory of individual decision-making. The methodology that supports this type of analysis is based on the philosophical tradition of verstehen. Because most economists are not familiar with this philosophy, I summarize the major advancements made by Martin Heidegger and Hans-Georg Gadamer, two of the leading philosophers in the verstehen tradition. Unlike other approaches, the type of theory constructed here can be applied to the study of specific historical phenomenon such as business behavior. In addition, this theoretical approach bridges the perceived gap between objective, external constraints and subjective, internal perceptions. Using the concept of organizational culture to construct ideal types, I indicate how this theory can be used to analyze the coordination of business units and firms. In addition, systems theory is introduced to demonstrate how processual ideal types can be created and applied to the empirical analysis of business decision-making