How did Thorstein Veblen challenge economic theories focused only on individual choices?

Thorstein Veblen challenged traditional economic theories—specifically the neoclassical focus on individual utility-calculation—by arguing that human behavior is fundamentally shaped by sociocultural contexts, institutions, and evolving customs.12

Rather than viewing people as autonomous decision-makers, Veblen emphasized the role of habit, instinct, and emulation in driving economic activity. He criticized the static nature of orthodox theory, proposing instead an evolutionary approach that viewed economic life as a cumulative, crisis-ridden process.21

Key aspects of his challenge included:

• Institutional Influence: He argued that individuals are continually affected by changing institutions and social structures, which create expectations that guide economic behavior.12
• Pecuniary vs. Technological Motives: Veblen distinguished between the industrial system, which requires efficiency and cooperation, and the business system, which he viewed as driven by the irrational pursuit of money and wealth display, such as through conspicuous consumption.13
• Rejection of Equilibrium: He rejected the idea of a self-balancing, smoothly changing system, favoring a perspective that incorporated social and cultural phenomena to explain economic problems.12

By shifting the focus from individual choice to the interplay between institutions and human action, Veblen laid the foundation for institutional economics.12