Choice and Action

In this essay, we argue that rational choice (RC) provides an inadequate foundation for a theory of economic action. After defining RC sufficiently broadly to encompass much of the bounded rationality literature as well as neoclassical optimization theory, we present three principal arguments against RC. The first is cognitive: economic actors are experts at what they do, and the cognitive processes that underlie expertise are not consistent with RC, descriptively, prescriptively or positively. The second argument begins with the observation that economic action takes place in and through relationships between agents, and these relationships may generate actions that cannot be localized to individual agents. We argue that these generative relationships are essential to understanding such fundamental economic phenomena as innovation, and the actions that result from them are not amenable to analysis from a RC perspective. Finally, we argue that most economic agents lack the judgement and execution coherence required by RC. In a companion paper, we propose an alternative foundation for a theory of economic action that builds on the critique of RC presented in this paper. ACKNOWLEDGEMENTS: We would like to thank the Santa Fe Institute and CNR (Italy) for support for our research. We benefited from discussions around the ideas presented here, as well as detailed comments and criticisms on previous drafts, from many people, including especially Brian Arthur, Michael Cohen, Jim Dickey, Stuart Dreyfus, Walter Fontana, Dick Nelson, John Padgett and Jim Pelkey. * Lane, Department of Political Economy, University of Modena ([email protected]); Maxfield, Department of Engineering and Economic Systems, Stanford University ([email protected]); Malerba and Orsenigo, Institute of Political Economy, Bocconi University ([email protected]).