Rationality, irrationality and economic cognition
Whalley, John (2004) Rationality, irrationality and economic cognition. Working Paper. University of Warwick. Centre for the Study of Globalisation and Regionalisation, Coventry.
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This paper contrasts the modern use of the assumption that rationality as reflected in simple models of utility and profit maximization guides individual economic behaviour to literature both between 1890 and 1930 which sharply challenged the use of such an assumption and 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.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HG Finance|
|Divisions:||Faculty of Social Sciences > Centre for the Study of Globalisation and Regionalisation|
|Library of Congress Subject Headings (LCSH):||Finance, Personal, Learning, Economics -- Philosophy, Reasoning (Psychology)|
|Series Name:||Working papers (University of Warwick. Centre for the Study of Globalisation and Regionalisation)|
|Publisher:||University of Warwick. Centre for the Study of Globalisation and Regionalisation|
|Place of Publication:||Coventry|
|Number of Pages:||30|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
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