A great number of empirical studies now challenge the position of conceptualising human behaviour only in the framework of a rational, utility-maximizing homo-economicus. Yet, this framework is used for the purpose of simplicity and tractability in situations where abstraction does not result in major loss of focus and information at hand.
Recent evidence in behavioral finance and consumer psychology points to the fact that consumer information processing capabilities are limited and prone to error. Alias paradox and Ellsberg paradox are good examples of this phenomenon. Furthermore, ‘Ultimatum Game’ reflects the fact that people tend to look at their choice outcomes relatively. Prisoner’s Dilemma highlights the fact that choices by each player in a self-centric way are not necessarily going to be best for them either individually or collectively.
Studies in primary-data based religious choices or economic choices by religious persons can explain differences in social and economic choices between religious and non-religious groups, but measuring both the religiosity and its causal effect on behavior is difficult to establish. Furthermore, it is only a Godly endeavor to truly judge about religiosity.
Human welfare in Islamic worldview encompasses economic welfare, but comprises much more than that. The achievement of human welfare is sought in both aspects of human life, i.e. worldly life and eternal life hereafter.
In Islamic economic framework, increase in investment through entrepreneurial activities could increase the labor demand and wages. Increase in wages will improve the standard of living of poor labor class and enable them to improve their productivity further.
Most of the description of human economic behavior in mainstream economics is trivial at best. Mankiw once wrote in a widely used textbook ‘people react to incentives, rest is commentary’. Islamic economics cannot confine itself to commentary on material pursuits alone. In mainstream economics, the important issues of equity, welfare, equitable distribution and institutions that can ensure these are at the periphery rather than at the center.
Islam allows wage differentials based on productivity differences, but does not allow discrimination. Furthermore, if wage differentials are because of characteristics that require equitable distribution and access to resources, then, Islam has unique mechanisms that ensure equitable distribution of resources and opportunities.
As per Islamic principles, within certain bounds, the market forces can operate and will determine which goods should be produced and offered at what price. The major difference from capitalistic system is that rather than having a fixed compensation, the capital will only earn a share in actual profit/loss out of the production process in which it is used.
The idea of material progress and well being enabling the people to forget fear and religion and Question of ‘why we exist’, has failed. Ignoring the purpose of existence and trying to replace it with material self pursuit does not and has not solved the fundamental human quest of ‘why we exist’.
Islamic inheritance laws in Islamic economic framework have the potential to permanently and systematically reduce the concentration of wealth in every generation at the most micro level possible.