Towards a Process Conception of Rationality in Economics and Science

A conception of rationality is the most pressing issue now facing economic science. This is apparent in the debate regarding the microfoundations of macroeconomics. Marshallians like Robert Clower and Axel Leijonhufvud allow economic agents to be reasonable, while Walrasian and rational expectations theorists strictly require maximization. As a way of refraining the conflict, a conception of rationality in recent philosophy of science is developed. A processive, critical, and multidimensional conception of scientific rationality is created in this 1984 article from the contributions of Karl Popper, Thomas Kuhn, Imre Lakatos, and cognitive psychologist Walter Weimer. This conception of rationality ranges over several levels of abstraction and several types of arguments with falsification as one dimension of rational inquiry. This conception of scientific rationality then motivates the construction of a similarly conceived conception of economic rationality. A nonjustificational conception of economic reality as a critical, judgmental process is created with maximization as a special case. Keywords: rationality in economics, rationality in science, rationality as a process, microfoundations, rational expectations, philosophy of science ********** Rationality is the most pressing issue now facing economic science. Different conceptions of rationality may be the major issue dividing post-Keynesians from monetarists and rational expectations theorists. (1) Since a conception of rationality is most often presupposed and rarely articulated, the economics profession at large may be quite unaware of how fundamental the differences are among contemporary economists. If, in fact, economists are divided over a conception of rationality, then the view espoused by positive economists--that all the major differences among mainstream economists are empirically resolvable--is quite misleading and invalid. (2) One domain of economic inquiry which illustrates the differences among economists regarding rationality is the microfoundations of macroeconomics. In conventional economic terms, the issues can be expressed without reference to rationality and concern the relative adequacy of (a) comparative static, equilibrium analysis and (b) disequilibrium, sequential process analysis. The former is known as a Walrasian microfoundation and the latter as a Marshallian microfoundation. With the latest resurgence of the Walrasian microfoundation in macroeconomics--the well-known rational expectations hypothesis--it is no longer possible to ignore differences among economists concerning rationality. To illustrate how fundamentally Marshallian and Walrasian theorists differ over a conception of rationality, the following hypothesis is postulated--that a rather general, process conception of economic rationality can be developed with maximization (and by implication the Walrasian microfoundation) as a special-case. (3) The process conception of rationality is first developed with reference to philosophy of science. Then it is reformulated into a processive conception of economic rationality with maximization and the Walrasian microfoundation as a special case. (4) This strategy involves implicitly recognizing that decision-making problems in economics and in science exhibit quite similar characteristics. This is particularly true if the processes of information-gathering and expectations-formation are viewed as just as important in economics as they are in scientific research. The philosophy of science from which a processive conception of rationality is developed is the well-known work of Popper, Kuhn, and Lakatos. RATIONALITY, RATIONAL EXPECTATIONS, AND THE MICROFOUNDATIONS DEBATE When the microfoundations of macroeconomics are considered, the path-breaking work of two economists comes immediately to mind, viz. that of Robert Clower and Axel Leijonhufvud. (5) Clower (1965, 1967) is known for his "Dual Decision Hypothesis" and for his work on the microfoundations of a monetary economy. …