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Rationality

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  • Binmore, Ken

Abstract

This chapter is a very compressed review of the neoclassical orthodoxy on the nature of rationality on economic theory. It defends the orthodoxy both against the behavioral criticism that it assumes too much and the revisionist view that it assumes too little. In places, especially on the subject of Bayesianism, the paper criticizes current practice on the grounds that it has gone astray in departing from the principles of its founding fathers. Elsewhere, especially on the modeling of knowledge, some new proposals are made. In particular, it is argued that interpreting counterfactuals is not part of the function of a definition of rationality.

Suggested Citation

  • Binmore, Ken, 2015. "Rationality," Handbook of Game Theory with Economic Applications,, Elsevier.
    • Handle: RePEc:eee:gamchp:v:4:y:2015:i:c:p:1-26
    DOI: 10.1016/B978-0-444-53766-9.00001-X
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    More about this item

    Keywords

    Substantive rationality; Neoclassical economics; Revealed preference; Risk; Uncertainty; Bayesianism; Small worlds; Common prior; Common knowledge; Nash equilibrium; Equilibrium selection; Refinement theory; Nash program; B41; C70;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General

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