1. Constant and Variable Rationality in Economics
Vladimir Avtonomov
NRU HSE, Primakov IMEMO Institute
Moscow

2. Which Rationality?
The cognitive component of the model of man. Rationality principle and rationality hypothesis (Vanberg)

3. Classical Political Economy
Cognitive component of the classical model of man did not substantially differ from common sense (non-stupidity) – a heuristic principle. The crucial role of isolating the object of economic science from general human behaviour was performed by the motivational assumption of self-interest. .

4. Marginal revolution
Rationality in the sense of utility maximisation became the main isolating assumption of economic theory. Still a heuristic principle but much more demanding than non-stupidity.
In the world, where objective constraints of behaviour change incessantly, the invariant principle of rationality is an essential prerequisite for economic theory.

5. Samuelson
Rationality as logical consistency - behaviour satisfying a set of axioms
A necessary but not sufficient condition of utility maximisation
Still a principle but a formal one, the objective is not relevant (can be even stupid - Sen’s rational fools)

6. Von Neumann-Morgenstern
Rationality not only as a principle but also as a verifiable hypothesis. The objective is specified.
Expected utility could be stated as a normative thesis: objectively best subjective choice

7. Rationality principle and rationality hypothesis as strong abstractions
Sometimes they could be applied in different degree to different people and situations and this may be substantial for the task economists face.
The main question is how to deal with these differences endangering the relevance of economic theory. There are two groups of answers to this question (and several subgroups).

8. Within constant rationality 1
a) To assume the differences away by choosing a representative agent (with representative level of rationality) as a suitable object of analysis. This representative rationality can be an average or even a maximal one.
Arguments :
Practical (Marshall, but not applicable to monopolisation of markets or certain operations on financial markets
Epistemological (Mises - otherwise a social science is not possible).
Analytical convenience (macroeconomists of rational expectations tradition using uniform rationality)

9. Within constant rationality 2
b) To modify the cognitive component of the model of man, making it more realistic
to modify the principle : bounded rationality model of Herbert Simon (return to non-stupidity?)
to modify the hypothesis: prospect theory of Kahneman and Tversky
behavioral finance (Thaler, Shiller)

10. Within variable rationality 1
c) To add a new economic agent who will take the responsibility for discrepancies between real behaviour and rationality principle. The remaining agents remain traditionally rational (which makes the theorist’s life easier)
Schumpeter’s and Knight’s entrepreneurs
Fama’s lay public entering stock markets and destroying its presumed efficiency

11. Variable rationality 2
d)To split an economic agent, displaying its multiple selves. In this case an additional economic agent is discovered within an individual (Thaler and Sheffrin, Elster on Ulysses and sirens etc).

12. Variable rationality 3
e) to make a degree of rationality a continious variable which depends on different circumstances. Then the degree of rationality itself can be subjected to optimisation, and people can choose optimal but not maximal degree of rationality themselves (H. Leibenstein’s X – efficiency theory)

13. Conclusion: pluralistic rationality?
Rationality assumption today is not only a general principle and surely not a refutable hypothesis. It is a modelling device.
For the models ad hoc we select rationality assumptions ad hoc (from the same “box of instruments”)