Beyond Keynes, Volume One
Edited by Shelia C. Dow and John Hillard
Chapter 6: Uncertainty, rationality and learning: a Keynesian perspective
Alessandro Vercelli I INTRODUCTION Human rationality is at the same time condition and consequence of learning, since learning is based on rationality and rationality is implemented through learning. Therefore whatever conception of rationality is proved to be unable to explain the aims and characteristics of the learning process should be considered as suspect. This is the case with ‘substantive rationality’, which is still the prevailing conception of rationality in economic theory. Substantive rationality implies that a rational agent never makes systematic mistakes, not only ex ante but also ex post (Vercelli, 1991). This has the uncomfortable implication that a rational agent has no economic incentives to avoid systematic mistakes: strategic learning, which aims to avoid systematic mistakes in order to discover a strategy more proﬁtable than that adopted so far, would be deprived of any economic value and would become unintelligible. This makes also altogether unintelligible, at least from the economic point of view, the genesis and foundations of substantive rationality. It seems therefore inescapable to conclude that substantive rationality cannot be justiﬁed in empirical terms under its own assumptions, and therefore cannot be accepted unless we believe in some sort of pre-established harmony between individual decisions and economic reality. It is controversial whether ‘Bayesian rationality’, that is the conception of rationality underlying Bayesian decision theory, succeeds in overcoming the limitations of substantive rationality. I will argue in this chapter that Bayesian rationality itself is unable to analyse in a satisfactory way the economic role and implications of...
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