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Allocation of scarce resources when rationality is one of them: some consequences of cognitive inequalities for theory and policy

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  • Pelikan, Pavel

Abstract

"Rationality" is understood in the empirical sense of cognitive abilities of human brains for solving economic problems, and consequently recognized bounded in individually unequal ways. This is shown to require treating it as a unique scarce resource, used for deciding on its own uses. This uniqueness disturbs axiomatic economics by a tangled hierarchy, and implies that rationality-allocation can approach efficiency only by means of an institutionally shaped trial-and-error evolution. Applied to the markets vs. government issue, a comparative institutional analysis of rationality-allocation yields novel insights with non-standard policy implications, and thus demonstrates that rationality-allocation matters.

Suggested Citation

  • Pelikan, Pavel, 2007. "Allocation of scarce resources when rationality is one of them: some consequences of cognitive inequalities for theory and policy," MPRA Paper 3657, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:3657
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    File URL: https://mpra.ub.uni-muenchen.de/3657/1/MPRA_paper_3657.pdf
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    References listed on IDEAS

    as
    1. Pelikan, P, 1992. "The Dynamics of Economic Systems, or How to Transform a Failed Socialist Economy," Journal of Evolutionary Economics, Springer, vol. 2(1), pages 39-63, March.
    2. Sidney G. Winter, 1971. "Satisficing, Selection, and the Innovating Remnant," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 85(2), pages 237-261.
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    Cited by:

    1. Pavel Pelikán, 2010. "The Government Economic Agenda in a Society of Unequally Rational Individuals," Kyklos, Wiley Blackwell, vol. 63(2), pages 231-255, May.

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    More about this item

    Keywords

    unequally bounded rationality; rationality-allocation; tangled hierarchy; institutionally shaped evolution; comparative institutional analysis;
    All these keywords.

    JEL classification:

    • P5 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems
    • D6 - Microeconomics - - Welfare Economics
    • H1 - Public Economics - - Structure and Scope of Government
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior

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