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BBI of Chicago
December 2021

Praxeology applied to Behavioral Finance

By: Kabian Sadi Campozana.

The Austrian School of Economics in Praxeology studied human action. The fundamental foundation of this philosophy is that human beings act to achieve desired ends of greater subjective satisfaction (MURPHY, 2010).


This philosophy originates from Epistemology, of the deductive factual type, an aprioristic science (IORIO, 2011). This methodology diverges profoundly from the natural sciences, whose empirical methodologies, based on observation, are a posteriori. It is impossible to conduct truly controlled social experiments with the same samples (MURPHY, 2010).

Praxeology gives rise to the concept of Business Function which, as defined by DE SOTO (2013), is a spontaneous and complex process, built through the interaction of millions of people with different objectives and knowledge, resulting in the creation, transmission, and adjustment of competitive information and that allows the peaceful coexistence of society.

Böhm-Bawerk, a prominent academic of the Austrian School, introduced, in 1890, the concept of time preference, whose conclusion is verified in practice through the experiment popularly called The Marshmallow Test, conducted in 1970 (NAVIDAD, 2020). This is one of the most interesting intersections of Austrian theory and modern Behavioral Finance.


BÖHM-BAWERK (1890) states that, when individuals act, they weigh between the means and end-values, exercising a business function. The human being has a preference for present goods, so the gain of future goods should be subjectively more valuable. When exercising the business function, the agent must choose to forgo something in the goods in the present for a promise of goods in the future, so that they have a value greater than the immediate value of the present goods.

This is a civilizing process that allows economic progress. A parallel in agriculture can be drawn by imagining a tribe that never spares its seeds, consuming all its resources immediately. This tribe will be doomed to live without any economic progress. On the other hand, a tribe that accepts going through fasting and giving up momentary satisfaction manages to save part of the seeds and plant them, developing agriculture and increasing its productivity. More productive, this tribe is allowed to pursue other ends, advancing their civilization. It was on this principle that some children failed the Marshmallow Test. A propensity for behavior that hinders personal and economic progress has been demonstrated when a person doesn't forgo present satisfaction in the name of higher future satisfaction.

The fact that this concept exists since 1890 shows the solidity of the Austrian economics thesis for the analysis of human action and its impacts on finance, highlighting its relevance in the field of study of Behavioral Finance.



BÖHM-BAWERK, Eugen von. Capital and Interest: A Critical History of Economical Theory. London: Macmillan, 1890.

DE SOTO, Jesús Huerta. Socialismo, Cálculo Econômico e Função Empresarial. São Paulo: Instituto Ludwig von Mises, 2013

IORIO, Ubiratan Jorge. Ação, tempo e conhecimento: A Escola Austríaca de Economia. São Paulo: Instituto Ludwig von Mises, 2011.

NAVIDAD, A. E. Marshmallow test experiment and delayed gratification. Symply Psychology, 2020. Available in <>. Access in July 17th, 2021.

MURPHY, Robert P. Preaxeologia – A conclusão nada trivial de Mises. Mises Brasil, 2010. Available in <>. Access in July 17th, 2021.

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