Rational Choice as If the Choosers Were Human

This book chapter demonstrates that there has been from Adam Smith to Vernon Smith a tradition of economic scholarship that is grounded in the decision calculus of individuals, or what F.A. Hayek referred to as the logic of choice, which requires neither the heroic assumptions of omniscience, nor that individuals are interacting with each other in frictionless environments. Instead, they see man as pursuing their varied purposes and caught as they often are between alluring hopes and haunting fears, and interacting in institutional environments that are constituted by vaguely and imperfectly understood rules that are often poorly enforced, and yet through the filter mechanisms of this institutional environment are guided to act in ways that coordinate their activities with those of others to realize the mutual gains from social cooperation. In fact, it is precisely because these scholars emphasize the open-endedness of choice that they can identify the role that even imperfect institutions play in coordinating economic affairs through time.