Problems with the Rational Economic Man: Toward the Institutionalist Reconstruction of Economic Theory

An analysis of neoclassical economic theory argues that economic agents can maximize behavior only under certain conditions of information availability & cognitive capability. When these conditions are absent, & agents are operating with limited capabilities, uncertainty fundamentally determines the context of their decision making. This concept of bounding rationality can be integrated into the basic neoclassical model with attention to the role of institutions. With the inclusion of the institutional dimension in the model, realistic assumptions about the economic agents can be made. Economic agents are typically unable to process all available information, so the model of an optimizing agent is rejected. Institutions function in an informational role in the complex environment faced by agents, & they are endogenous to the decision-making process. This more realistic model creates a space for productive dialogue between economics & other social sciences. 83 References. Adapted from the source document