Economic theory is essentially a theory of how decision makers choose between the alternatives which are available in any given context. The theory makes three key assumptions:
1) each agent has a set of preferences about the alternative choices which are available, which is fixed over time;
2) agents make choices independently, and their preferences are not altered directly by the decisions of others;
3) the agent both gathers and is able to process complete information about the alternatives.
This ensures that the optimal choice is made, given the preferences of the agent and the constraints which the agent faces. The third assumption has been relaxed in recent decades to allow for the possibility that agents may have incomplete information, but the agent is still assumed to make the optimal choice, given this additional constraint. In the cyber society of the 21st century, these assumptions are increasingly unrealistic. A new model of rationality is needed to replace the existing one of economic theory, which was developed in the 19th century. There is now a stupendous proliferation of choice in many contexts. Often, the alternatives differ in numerous minor and almost incomprehensible ways. Agents lack the ability to process information on this scale. In 1955 (!), Simon called for “the [replacement of] the global rationality of economic man with a kind of rational behavior which is compatible with the access to information and computational capacities that are actually possessed by organisms” (Quarterly Journal of Economics).


Paul Ormerod

Invited Talk e-session

Photos by : Ivan