Rationality, Irrationality and Economic Cognition
This paper contrasts the modern use of the assumption that rationality guides individual economic behaviour, as reflected in simple models of utility and profit maximization, to literature between 1890 and 1930 which sharply challenged the use of such an assumption, as well as to later literature in economic psychology from Herbert Simon onwards which sees economic (and other) cognitive processes in different ways. Some of the earlier literature proposed objective and operational notions of rationality based on the availability of information, ability to reason (cognitive skills), and even morality. Learning played a major role in individuals achieving what was referred to as complete rationality. I draw on these ideas, and suggest that developing models in which economic agents have degrees (or levels) of economic cognition which are endogenously determined could both change the perceptions economists have on policy matters and incorporate findings from recent economic psychology literature. This would remove the issue of whether economic agents are dichotomously rational or irrational, and instead introduce continuous metrics of cognition into economic thinking. Such an approach also poses the two policy issues of whether raising levels of economic cognition should be an objective of policy and whether policy interventions motivated by departures from full economic cognition should be analyzed.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Postal: Poschingerstrasse 5, 81679 Munich|
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Augier, Mie, 2001. "Sublime Simon: The consistent vision of economic psychology's Nobel laureate," Journal of Economic Psychology, Elsevier, vol. 22(3), pages 307-334, June.
- David Laibson, 1997.
"Golden Eggs and Hyperbolic Discounting,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 112(2), pages 443-478.
- B. Douglas Bernheim & Antonio Rangel, 2002.
"Addiction and Cue-Conditioned Cognitive Processes,"
NBER Working Papers
9329, National Bureau of Economic Research, Inc.
- Herbert A. Simon, 1984. "Models of Bounded Rationality, Volume 1: Economic Analysis and Public Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262690861, June.
- Blais, Andre & Young, Robert, 1999. "Why Do People Vote? An Experiment in Rationality," Public Choice, Springer, vol. 99(1-2), pages 39-55, April.
- Veblen, Thorstein, 1909. "The Limitations of Marginal Utility," History of Economic Thought Articles, McMaster University Archive for the History of Economic Thought, vol. 17.
- Waldfogel, Joel, 1993. "The Deadweight Loss of Christmas," American Economic Review, American Economic Association, vol. 83(5), pages 1328-36, December.
- Gary S. Becker & Kevin M. Murphy, 1986.
"A Theory of Rational Addiction,"
University of Chicago - George G. Stigler Center for Study of Economy and State
41, Chicago - Center for Study of Economy and State.
When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_1445. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra)
If references are entirely missing, you can add them using this form.