Bounded Rationality, Institutionalism and the Diversity of Economic Institutions

In a world of bounded rationality the ability to economize on bounded rationality must also be severely bounded and "economizing behavior" cannot be mechanically extended to bounded rationality without contradicting the idea of bounded rationality itself. Thus, bounded rationality does necessarily involve some departure from the economizing behavior that is assumed in standard economic theory. The paper considers the problem of bounded rationality with particular reference to bounded communication skills, bounded information processing skills, bounded calculation skills, bounded preference formation skills and bounded emotional skills. We argue that the approach of Veblen and Clark offers valuable insights in the problems arising from this strong version of the bounded rationality problem even if they fail to cope with some of the issues arising from the diversity of economic institutions