The Concept of Rationality in Modern Social Sciences: A Critical Appraisal of Joseph A. Schumpeter’s Essay on “The Meaning of Rationality”

Abstract

Schumpeter draws a distinction among three types of rationality: rationality of the observer, objective rationality, and subjective rationality. In the first paragraph, I describe and discuss the different types of rationality and explore the relation to the homo oeconomicus and the rational choice model. Subjective rationality goes beyond standard rational choice theory as it emphasizes the importance of mental processes. The problem of rationality in the presence of strategic interaction is discussed in a second paragraph. Although Schumpeter mentions the often unintended results of individual actions, he is not explicit about the problem of rationality when actors’ decisions are interdependent. Schumpeter is well known for his evolutionary approach to economics. Rational choice theory often fails to explain the outcome of evolutionary processes, while models of adaptation, myopic behavior, and learning, i.e., models of bounded rationality, yield more suitable explanations. I discuss these issues in paragraph three using examples from experimental game theory. My conclusion focuses on some critical remarks on the “blind spot” of rational choice theory that neglects the path to equilibrium and to more or less suboptimal outcomes.