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Asymmetric and Imperfect Knowledge
A Proposal to Replace Unbounded Rationality with Bounded Rationality
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This book is a proposal to address the incoherencies of New Keynesian economics by replacing the standard neoclassical rational choice theory used in New Keynesian economics with bounded rationality. Bounded rationality is redefined as people are rational, but are bounded by asymmetric and imperfect knowledge. This decomposition of bounded rationality makes it possible for us to operationalize bounded rationality, which was founded by Herbert Simon in the 1950s, but has not been widely adopted in economics because the concept was considered too difficult to formalize.§Bounded rationality does not just provide better micro-foundations for New Keynesian economics. It also provides better explanations to various anomalies in neoclassical economics, enhancing economics scientific aspirations, as well as opening the possibility of unifying various schools of economic thought.
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