Toward a “choice Cost Economics”: a Positive and Generalized Model of Rational Choice for Institutional Economics
Abstract: This paper introduces a simple, positive model of choice that is empirically grounded in the natural blind search mechanisms that are fundamental in all biological and evolutionary processes. This generalized rational choice model can be explicitly derived from the standard rational choice model by converting its implicit fixed assumptions into explicit variables, such as nonzero times and costs to evaluate choices. One novel implication of recognizing positive “choice costs” is that the human mind no longer has an insurmountable competitive advantage in its ability to do choice evaluation. The “rational” calculation of optimal potential actions might be more efficiently accomplished with faster, cheaper or better processes for choice evaluation that operate outside the mind. In other words, a theory of economic substitutes emerges for rational choice, ranging from traditional rational choice, which is 100% vicarious trials of choices in the mind, to 100% actual choice trials in the real world. Countless substitute methods for evaluating choices are predicted (and observed) to appear between these endpoints, but have been previously ignored. Many real institutions can be freshly understood as manifestations of efficient serial (and parallel) allocation of blind choice trials among search stages with economic tradeoffs: from low costs and times to evaluate a choice with low predictive accuracy, to higher costs, times and accuracies up to the full-cost trials of real actions.