“The type of rationality we assume in economics — perfect, logical, deductive rationality — is extremely useful in generating solutions to theoretical problems. But it demands much of human behavior — much more in fact than it can usually deliver. If we were to imagine the vast collection of decision problems economic agents might conceivably deal with as a sea or an ocean, with the easier problems on top and more complicated ones at increasing depth, then deductive rationality would describe human behavior accurately only within a few feet of the surface. For example, the game Tic-Tac-Toe is simple, and we can readily find a perfectly rational, minimax solution to it. But we do not find rational “solutions” at the depth of Checkers; and certainly not at the still modest depths of Chess and Go.”

—  W. Brian Arthur

Source: Inductive Reasoning and Bounded Rationality (The El Farol Problem) (1994), p. 1

Adopted from Wikiquote. Last update June 3, 2021. History

Help us to complete the source, original and additional information

Do you have more details about the quote "The type of rationality we assume in economics — perfect, logical, deductive rationality — is extremely useful in gener…" by W. Brian Arthur?
W. Brian Arthur photo
W. Brian Arthur 16
American economist 1946

Related quotes

“Unlike pure theorists, we shall not assume at the outset that rational behavior exists or that rational behavior constitutes the topic of economic analysis. We shall study economic behavior as we find it. In describing and classifying different reactions, as well as the circumstances that elicit them, we shall raise the question whether and in what sense certain reactions may be called “rational.” After having answered that question and thus defined our terms, we shall study the fundamental problem: Under what conditions do more and under what conditions do less rational forms of behavior occur?”

George Katona (1901–1981) American psychologist

George Katona (1951). Psychological Analysis of Economic Behavior. McGraw-Hill, New York. p. 16; as cited in: Erik Angner and George Loewenstein. "Behavior economics," in: Philosophy of Economics, (2012), p. 657

Richard A. Posner photo

“As conceived in this book, economics is the science of rational choice in a world─our world─in which resources are limited in relation to human wants. The task of economics, so defined, is to explore the implications of assuming that man is a rational maximizer of his ends in life, his satisfactions─what we shall call his “self-interest.” Rational maximization should not be confused with conscious calculation. Economics is not a thoery about consciousness. Behavior is rational when it conforms to the model of rational choice, whatever the state of mind of the chooser.(…) Nor is perfect rationality assumed; rational-choice thoery allows us to assume that rationality is “bounded” because of human cognitive limitations, although another way to think of those limitations is as costs of absorbing and using information.”

Richard A. Posner (1939) United States federal judge

Source: Economic Analysis of Law (7th ed., 2007), Ch. 1: The Nature of Economic Reasoning

Herbert A. Simon photo

“The principle of bounded rationality [is] the capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required for objectively rational behavior in the real world — or even for a reasonable approximation to such objective rationality.”

Herbert A. Simon book Administrative Behavior

Variant: The principle of bounded rationality [is] the capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required for objectively rational behavior in the real world — or even for a reasonable approximation to such objective rationality.
Source: 1940s-1950s, Administrative Behavior, 1947, p. 198.

“Since economics deals with human beings, the problems of its scientific treatment involves fundamental problems of the relations between man and his world. From a rational or scientific point of view, all practically real problems are problems in economics. The problem of life is to utilize resources "economically," to make them go as far as possible in the production of desired results. The general theory of economics is therefore simply the rationale of life. - In so far as it has any rationale! The first question in regard to scientific economics is this question of how far life is rational, how far its problems reduce to the form of using given means to achieve given ends. Now this, we shall contend, is not very far; the scientific view of life is a limited and partial view; life is at bottom an exploration in the field of values, an attempt to discover values, rather than on the basis of knowledge of them to produce and enjoy them to the greatest possible extent. We strive to "know ourselves," to find out our real wants, more than to get what we want. This fact sets a first and most sweeping limitation to the conception of economics as a science.”

Frank Knight (1885–1972) American economist

Source: "The limitations of scientific method in economics", 1924, p. 97 (2009 edition); Lead paragraph

Donald A. Norman photo

“Even though principles of rationality seem as often violated as followed, we still cling to the notion that human thought should be rational, logical, and orderly. Much of law is based upon the concept of rational thought and behavior. Much of economic theory is based upon the model of the rational human who attempts to optimize personal benefit, utility, or comfort. Many scientists who study artificial intelligence use the mathematics of formal logic—the predicate calculus—as their major tool to simulate thought. […] Human thought is not like logic; it is fundamentally different in kind and spirit. The difference is neither worse nor better. But it is the difference that leads to creative discovery and to great robustness of behavior.”

Donald A. Norman book The Design of Everyday Things

Source: The Design of Everyday Things (1988, 2002), Ch. 5, pp. 114–115.

“One troublesome aspect is the place of rational expectations macroeconomics in the often political debate over Keynesian economics. At least implicitly, many people feel that what's bad for the rational expectations viewpoint is good for the Keynesian one, and vice versa. But it is hard to see how the problems in using the rational expectations approach to explain monetary nonneutrality can alleviate the theoretical and empirical shortcomings of the Keynesian model.”

Robert Barro (1944) American classical macroeconomist

Robert J. Barro, "Rational Expectations and Macroeconomics in 1984" (1984).

“The first of the two cases which we are about to discuss concerns a large-scale Parisian administrative organization which may be described as rigid, standardized, and impersonal, and which seems unable to cope with the human and technical problems engendered by its recently accelerated growth. Its hierarchical structure, its promotional system, and its principles of organization are extremely simple. The behavior of its different categories of personnel, as actors within its social system, is therefore much easier to analyze. The actors appear to be both extremely rational and extremely predictable, as if they were playing a game that followed an experimental model. We shall use the opportunity afforded by such a situation to try to understand better one of the most fundamental problems usually associated with the concept of bureaucracy, the problem of routine.”

Michel Crozier (1922–2013) French sociologist

Source: The Bureaucratic Phenomenon, 1954, p. 12; Lead paragraph chapter 1

Béla H. Bánáthy photo

“Science focuses on the study of the natural world. It seeks to describe what exists. Focusing on problem finding, it studies and describes problems in its various domains. The humanities focus on understanding and discussing the human experience. In design, we focus on finding solutions and creating things and systems of value that do not yet exist.
The methods of science include controlled experiments, classification, pattern recognition, analysis, and deduction. In the humanities we apply analogy, metaphor, criticism, and (e)valuation. In design we devise alternatives, form patterns, synthesize, use conjecture, and model solutions. \
Science values objectivity, rationality, and neutrality. It has concern for the truth. The humanities value subjectivity, imagination, and commitment. They have a concern for justice. Design values practicality, ingenuity, creativity, and empathy. It has concerns for goodness of fit and for the impact of design on future generations.”

Béla H. Bánáthy (1919–2003) Hungarian linguist and systems scientist

Source: Designing Social Systems in a Changing World (1996), p. 34-35, as cited in Alexander Laszlo and Stanley Krippner (1992) " Systems Theories: Their Origins, Foundations, and Development http://archive.syntonyquest.org/elcTree/resourcesPDFs/SystemsTheory.pdf" In: J.S. Jordan (Ed.), Systems Theories and A Priori Aspects of Perception. Amsterdam: Elsevier Science, 1998. Ch. 3, pp. 47-74.

“The purpose of this book is to show how economic analysis can be used in formulating business policies. It is therefore a departure from the main stream of economic writings on the theory of the firm, much of which is too simple in its assumptions and too complicated in its logical development to be managerially useful. The big gap between the problems of logic that intrigue economic theorists and the problems of policy that plague practical management needs to be bridged in order to give executives access to the practical contributions that economic thinking can make to top-management policies.”

Joel Dean (1906–1979) American economics wrtier

Preface
Managerial Economics, 1951

Paul Krugman photo

“Keynes didn’t make an all-out assault on Economic Man, but he often resorted to plausible psychological theorizing rather than careful analysis of what a rational decision-maker would do. Business decisions were driven by “animal spirits,” consumer decisions by a psychological tendency to spend some but not all of any increase in income, wage settlements by a sense of fairness, and so on.
But was it really a good idea to diminish the role of Economic Man that much? No, said Friedman, who argued in his 1953 essay “The Methodology of Positive Economics” that economic theories should be judged not by their psychological realism but by their ability to predict behavior. And Friedman’s two greatest triumphs as an economic theorist came from applying the hypothesis of rational behavior to questions other economists had thought beyond its reach.”

Paul Krugman (1953) American economist

"Who Was Milton Friedman?", The New York Review of Books (February 15, 2007)
The New York Review of Books articles

Related topics