I believe the most egregious falsehood peddled by economics is the rational choice picture of human agency. I believe it is false not, like the behaviorists, because people make systematic mistakes in trying to be rational, but because we are not trying to be rational - in the sense the theory means, the belief-desire model, where desires are reasons - at all. Our lives are spent for the most part, and for the most meaningful part, as participants in a diverse set of "practices" (in the sense made famous by Alasdair McIntyre's After Virtue). Being a participant in a practice means, inter alia, governing one's desires in acccordance with norms, norms to which we grant authority. Practices are in many cases constituted by deontic constraints on participants. There is a wonderful new book by the philosopher James D. Wallace, Norms and Practices, which I strongly recommend to fans of the rational actor model. At one point he quotes John Dewey and I want to pass it along. Dewey was not known for his eloquence, but as Wallace notes, this passage is an astonishing exception:
"The eternal dignity of labor and art lies in their effecting that permanent reshaping of environment which is the substantial foundation of future security and progress. Individuals flourish and whither away like the grass of the fields. But the fruits of their work endure and make possible the development of further activities having fuller significance. It is of grace not of ourselves that we live civilized lives. There is sound sense in the old pagan notion that gratitude is the root of all virtue. Loyalty to whatever in the established environment makes a life of excellence possible is the beginning of all progress. The best we can accomplish for posterity is to transmit unimpaired and with some increment of meaning the environment that makes it possible to maintain the habits of decent and refined life. Our individual habits are links in forming the endless chain of humanity. Their significance depends on the environment inherited from our forerunners, and it is enhanced as we foresee the fruits of our labors in the world in which our successors live." (The source is Human Nature and Conduct (1922) a wonderful book altogether).