Rationality and Bounded Rationality (1986)

I am honored to present this lecture in tribute to Nancy L. Schwartz. I did not know Professor Schwartz well, yet I am aware of her important professional contributions. First and foremost are the direct advances to the profession made through her writings. But also her indirect contributions, as a teacher and an intellectual leader, are very important. Some of the ideas and applications discussed in this lecture were developed in the excellent department she helped build. INTRODUCTIONEconomists have for long expressed dissatisfaction with the complex models of strict rationality that are so pervasive in economic theory. There are several objections to such models. First, casual empiricism or even just simple introspection leads to the conclusion that even in quite simple decision problems, most economic agents are not in fact maximizers, in the sense that they do not scan the choice set and consciously pick a maximal element from it. Second, such maximizations are often quite difficult, and even if they wanted to, most people (including economists and even computer scientists) would be unable to carry them out in practice.