Bounded Rationality, Institutions, and Uncertainty
Author(s)
Dequech, David
Abstract
This paper is about some theoretical relationships between bounded rationality, institutions, and uncertainty. Its purpose is to assess the usefulness and limitations of the notion of bounded rationality for a theory of economic behavior under fundamental uncertainty, in particular if such a theory emphasizes the role of institutions. It establishes a first relation between bounded rationality and fundamental uncertainty via complexity. The paper partly incorporates but qualifies criticisms of Simon’s theory for focusing on rules of thumb that may be strictly individual and for not paying enough attention to the social context in which people act and interact, as well as for neglecting habits and the tacit aspects of institutions. The paper also argues against neglecting the connection between innovation and rationality or implying that innovation is not rational.
