The economic analysis of rationality in the tradition of Harvey Leibenstein

Abstract

The paper is devoted to the economic analysis of rationality in the tradition of Harvey Leibenstein: the authors perceive rationality as “calculatedness” when making decisions, while the degree of this “calculatedness” is interpreted as a variable. Thus, this approach does not correspond to the generally accepted neoclassical interpretation of rationality, according to which rationality is both full and constant. The authors believe that such a neoclassical approach makes too stringent requirements for the abilities of people. In real life, people do not behave like calculating machines. The paper discusses various factors limiting the degree of rationality of individuals. One group of factors is associated with external information constraints such as the complexity and extensiveness of information, as well as the uncertainty of the future. Another group of factors is related to informal institutions. In particular, the paper states that the system of planned socialism contributes to less rationality than the system of market capitalism. Thus, in the post-socialist countries, including contemporary Russia, one should not expect a high degree of rationality of the behavior of economic entities. The paper mentions, in particular, the factors of rationality caused by informal institutions, such as the propensity to calculate, the propensity to be independent when making decisions and the propensity to set goals. The authors also believe that people who live on their own are usually more rational than people who share a common household with someone else. This assumption is verified econometrically based on data on young urban residents collected by the authors. It turned out that the behavior of people included in this database, in general, corresponds to what the authors believed.