“But Can’t we Get the Same Thing with a Standard Model?” Rationalizing Bounded-Rationality Models∗

This paper discusses a common criticism of economic models that depart from the standard rational-choice paradigm namely, that the phenomena addressed by such models can be “rationalized” by some standard model. I criticize this criterion for evaluating bounded-rationality models. Using a market model with boundedly rational consumers due to Spiegler (2006a) as a test case, I show that even when it initially appears that a bounded-rationality model can be rationalized by a standard model, the rationalizing models tend to come with unwarranted “extra baggage”. I conclude that we should impose a greater burden of proof on rationalizations that are offered in refutation of such models. ∗I thank Ayala Arad, Yves Guéron, Barton Lipman, Ariel Rubinstein and participants at the Summer School in Economics and Philosophy, San Sebastian 2009, for their comments. Financial support from the European Research Council, Grant no. 230251, as well as the ESRC (UK), is gratefully acknowledged. †Tel Aviv University and University College London. E-mail: [email protected]. URL: http://www.homepages.ucl.ac.uk/~uctprsp