The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd


  • Lawrence E. Blume
  • David Easley
Reference work entry


Economic theory takes the individual consumer and firm as a primitive unit of analysis, and so a theory of individual agency is required to derive hypotheses about the behaviour of markets and other systems of economic interest. One such theory is the principle of rationality, whereby agents act in their perceived best interest. This article surveys the implementation of this principle in economic models, and discusses the critiques of the rationality principle and some proposed alternatives from the perspective of the economic modeller.


Altruism Behavioural economics Bentham, J. Bounded rationality Choice under uncertainty Cognitive models Consistency Cooperation Decision theory Economic laws Economic man Evolutionary models Expected utility General choice theory Hyperplanes Interpersonal utility comparisons Marginal utility Mechanisms Menu choice models Methodological individualism Neuroeconomics Non-cooperative game theory Non-expected utility decision theory Preference formation Preference relation Prospect theory Rational choice Rational expectations Rational expectations equilibrium Rationality Rationality principle Reciprocity Revealed preference theory Savage’s subjective expected utility model Self-interest Social norms Social preferences Statistical decision theory Transitivity Trust Utilitarianism Utility 

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© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Lawrence E. Blume
    • 1
  • David Easley
    • 1
  1. 1.