chapter  4
Notes towards Rationality and Institutions
ByManimay Sengupta
Pages 15

In one of her incisive critiques of the reliance of neoclassical economic theory on individual rationality based on (expected) utility maximisation, Elinor Ostrom (1998:1) called for expanding the range of rational choice models as a foundation for the study of social dilemmas and collective action, and developing ‘second-generation models of empirically grounded, boundedly rational, and moral decision making’. Ostrom (1998:5) notes the Prisoner’s Dilemma as the ‘best-known social dilemma in contemporary scholarship’, and documents a wide variety of empirical and experimental results that shows that agents do cooperate (that is, choose actions that benefit all, provided others also take actions that jointly benefit everyone) to choose outcomes which are socially optimal in Prisoner’s Dilemma-like social situations, rather than compete (that is, act non-cooperatively and rationally) and choose the suboptimal ones.