Abstract

Research on bounded rationality has two cultures, which are called “idealistic” and “pragmatic.” Technically, the cultures differ on whether (1) they build models based on normative axioms or empirical facts; (2) they assume that people’s goal is to optimize or to satisfice; (3) they do not or do model psychological processes; (4) they let parameters vary freely or fix them; (5) they aim at explanation or prediction; and (6) they test models from one or both cultures. Each culture tells a story about people’s rationality. The story of the idealistic culture is frustrating, with people in principle being able to know what they should do, but in practice systematically failing to do it. This story makes one hide in books for intellectual solace or surrender to the designs of someone smarter. The story of the pragmatic culture is empowering: If people are boosted to use the right tool in the right situation, they do well.