The second route to integration of obligation into the economic model retains the assumption of full rationality.
Even when the Decision Maker (DM) is acting in conditions of full rationality, the design of the alternatives poses three difficulties: the presence of infinite alternatives; the presence of uncertainty produced by random disturbances; and the presence of recursive decisions.
The assumption of full rationality initially seems irresistible.
One possible drawback of these models is the assumption of full rationality, something that has been subject to much controversy, especially regarding long-run decisions like those involved in social security.
Secondly, the notion of full rationality, were it coherent, would leave us with justifications of arrangements that could not be reflexively endorsed by the individuals whose behavior they govern, so different are these individuals' actual beliefs and values from those which provide the reasons justifying the arrangements.
First of all, the notion of full rationality is incoherent when applied to finite and fallible beings (see Cherniak 1986); it requires adjustments to a dense web of beliefs and values that are not computable in real time and given limited resources.
If we see the solutions of f as the optimal solutions under full rationality and (epsilon_{n} -equilibrium of (f^{n}) as thepsilon_{n} -equilibriumunder bofnded rationality, Theorem A ref^{n}s thas the bounded rapproximateisolutionsmate to funderationality (see Simon [18]).
The distinction between theories of full rationality and less-than-full rationality is central to the project of idealization, though, as will emerge, full rationality is elusive.
Housing bubbles — like the one precipitating the current mess — are all too consistent with full rationality on an individual level: if a bank anticipates that a borrower will refinance his mortgage loan should the price of his house rise, it may lend him money even though it knows he can't pay it back.
Consider again the thesis appealing to a condition of full rationality.
