From Bounded to Epistemic Rationality: toward a Theory of Rational Discovery

This paper criticizes the divide ‘by assumption’ between rational choice and behavioral choice and proposes a way of reconnecting ‘bounded’ and ‘unbounded’ rationality. The connection is an epistemic model of rational discovery and problem modeling which can complement both the descriptive behavioral models of search and choice and the prescriptive model of rational choice. The concept of epistemic rationality is an answer to the question of how the knowledge on which any form of rational choice is based can be rationally constructed. It is also argued that the concept of epistemic rationality, and the operationalized models that can be developed by using it, can also provide a missing cognitive foundation for a variety of relevant economic behaviors and structures, such as exploration, innovation, strategy formulation, nearly-undecomposable structures, governance by communities, and design. INTRODUCTION How do new strategies and structures get discovered? Where do innovation in technology and products come from? How can economic actors improve their approach to those exploratory decision processes? Paradoxically, neither one of the two major paradigms about rationality in economic decision making is able to respond to these core and simple questions that any decision maker faces daily and which are so central in the currently much emphasized ‘knowledge based’ economy. In fact, the analysis of rationality in economic behaviors, at individual and organizational decision making levels alike, has come to be divided into two main ‘approaches’: the ‘rational choice approach’ typically ‘assumed’ in the majority of economic research, rooted in the ‘Savage paradigm’ (Savage 1954); and the ‘behavioral approach’ typically