Book contents
- Frontmatter
- Contents
- Preface
- Acknowledgments
- Introduction
- PART I RATIONALITY, MARKETS, AND INSTITUTIONS
- PART II IMPERSONAL EXCHANGE: THE EXTENDED ORDER OF THE MARKET
- 3 Relating the Two Concepts of a Rational Order
- 4 Market Institutions and Performance
- 5 Asymmetric Information and Equilibrium without Process
- 6 FCC Spectrum Auctions and Combinatorial Designs: Theory and Experiment
- 7 Psychology and Markets
- 8 What Is Rationality?
- PART III PERSONAL EXCHANGE: THE EXTERNAL ORDER OF SOCIAL EXCHANGE
- PART IV ORDER AND RATIONALITY IN METHOD AND MIND
- References
- Index
3 - Relating the Two Concepts of a Rational Order
Published online by Cambridge University Press: 18 May 2010
- Frontmatter
- Contents
- Preface
- Acknowledgments
- Introduction
- PART I RATIONALITY, MARKETS, AND INSTITUTIONS
- PART II IMPERSONAL EXCHANGE: THE EXTENDED ORDER OF THE MARKET
- 3 Relating the Two Concepts of a Rational Order
- 4 Market Institutions and Performance
- 5 Asymmetric Information and Equilibrium without Process
- 6 FCC Spectrum Auctions and Combinatorial Designs: Theory and Experiment
- 7 Psychology and Markets
- 8 What Is Rationality?
- PART III PERSONAL EXCHANGE: THE EXTERNAL ORDER OF SOCIAL EXCHANGE
- PART IV ORDER AND RATIONALITY IN METHOD AND MIND
- References
- Index
Summary
It is because every individual knows so little … and we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it.
Hayek (1960, p. 29)Introduction
Constructivism takes as given the social structures generated by emergent institutions that we observe in the world and proceeds to model them formally. An example would be the Dutch auction or its alleged isomorphic equivalent, the sealed bid auction (Vickery, 1961; Milgrom and Weber, 1982). Constructivist models need not ask why or how an auction institution arose; or what were the ecological conditions that created it; or why there are so many distinct auction institutions. In some cases, it is the other way around. Thus, the revenue equivalence theorem in auction theory shows that the standard auctions generate identical expected seller revenues, which, if taken literally, leaves no modeled economic reason for choosing between them. But society chooses between them in particular applications. It is important to ask how and why, and to avoid the Cartesian error of dismissing such social developments as irrational.
More generally, using rational theory, one represents an observed socio-economic situation with an abstract interactive game tree. Contrarily, the ecological concept of rationality asks certain prior questions: From whence came the structure captured by the tree? Why did this social practice occur, from which we can abstract a particular game, and not another practice with a different game-theoretic representation?
- Type
- Chapter
- Information
- Rationality in EconomicsConstructivist and Ecological Forms, pp. 45 - 60Publisher: Cambridge University PressPrint publication year: 2007