Allocation of scarce resources when rationality is one of them: some consequences of cognitive inequalities for theory and policy
Abstract"Rationality" is understood in the empirical sense of cognitive abilities of human brains for solving economic problems, and consequently recognized bounded in individually unequal ways. This is shown to require treating it as a unique scarce resource, used for deciding on its own uses. This uniqueness disturbs axiomatic economics by a tangled hierarchy, and implies that rationality-allocation can approach efficiency only by means of an institutionally shaped trial-and-error evolution. Applied to the markets vs. government issue, a comparative institutional analysis of rationality-allocation yields novel insights with non-standard policy implications, and thus demonstrates that rationality-allocation matters.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 3657.
Date of creation: May 2007
Date of revision:
unequally bounded rationality; rationality-allocation; tangled hierarchy; institutionally shaped evolution; comparative institutional analysis;
Find related papers by JEL classification:
- P5 - Economic Systems - - Comparative Economic Systems
- D6 - Microeconomics - - Welfare Economics
- H1 - Public Economics - - Structure and Scope of Government
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-06-23 (All new papers)
- NEP-CBE-2007-06-23 (Cognitive & Behavioural Economics)
- NEP-EVO-2007-06-23 (Evolutionary Economics)
- NEP-HPE-2007-06-23 (History & Philosophy of Economics)
- NEP-UPT-2007-06-23 (Utility Models & Prospect Theory)
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- Winter, Sidney G, 1971. "Satisficing, Selection, and the Innovating Remnant," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 85(2), pages 237-61, May.
- Pelikan, P, 1992. "The Dynamics of Economic Systems, or How to Transform a Failed Socialist Economy," Journal of Evolutionary Economics, Springer, Springer, vol. 2(1), pages 39-63, March.
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