Olympian Rationality, Adaptive Routines and Bounded Rationality

Markets work through networks of information flows, thanks to which people define contracts of exchanges and implement allocative choices. Understanding the way markets work means conceiving the cognitive capabilities which people use when they cooperate or compete in production and exchange. Both intellectual and relational capabilities are required, including attitudes pertaining to the sphere of behaviour related to ‘sympathy’. In considering cognitive aspects in economic activity, a minimum requirement should be to look at the multiple sides of intelligence explored by scholars in psychology. In economic theory the focus was primarily on intellectual capabilities in ‘rational choice’. Since the nineteenth century, in economics ‘rationality’ was conceived along three modelling strategies, which we broadly distinguish under the labels of perfect rationality, adaptive rationality and bounded rationality. They embody different views of how the mind works, when people deal with economic affairs, though they may partially overlap, calling into question the complexity or consistency of the architecture of cognition, which different economists propose.

The label ‘perfect’ rationality is here adopted to indicate the highest normative standard of rationality, also named ‘substantive’ rationality, or ‘Olympian’ rationality in Simon's definition. Perfect rationality postulates the best cognitive abilities in conceiving stable and coherent preference orderings, and in computing optimal solutions, applying well-defined optimizing procedures within given constraints, and on comprehensive data sets.