From bounded rationality to ecological rationality

Herbert Simon’s bounded rationality offers three principles for building a theory of behavior: (i) to study the process of actual decision making (as opposed to as-if models of expected utility maximization); (ii) to study how decisions are made in situations of uncertainty and intractability (as opposed to risk and ambiguity alone); and (iii) to study how minds adapt to environments (as opposed to modeling solely the mind or the environment). Economists hijacked bounded rationality by reinterpreting it to mean optimization under constraints, and psychologists by reinterpreting it as the study of cognitive biases, that is, deviations from optimization. This contradictory double-takeover silenced the revolutionary essence of Simon’s program. My colleagues and I have revived and extended Simon’s lost program, choosing the term ecological rationality to avoid any confusion. As opposed to the cognitive biases program, the study of ecological rationality is both descriptive and prescriptive. It investigates the repertoire of heuristics individuals or institutions have at their disposal (their adaptive toolbox) as well as the conditions under which each heuristic is successful and thus should be used, as measured by real-world criteria (the ecological rationality of heuristics). The study of the adaptive toolbox relies on observation and experimentation; the study of the conditions under which various heuristics should be used relies on mathematical analyses and computer simulations. This combination of descriptive and prescriptive analysis offers a novel perspective for behavioral economics and the study of decision making in general.