Hayek’s Complexity Assumption, Ecological and Bounded Rationality, and Behavioral Economics

Abstract

Much of Hayek’s research that relates to behavioral economics stems from his scholarship on the development of the concept of ecological efficiency and, connected to this, effective real-world decision making. This, in turn, relates to what Hayek refers to as the spontaneous order, where the most effective decisions and institutions arise “spontaneously” from bottom-up decision making processes, often in an unplanned and non-deliberative manner. Critical to Hayek’s research platform is integrating into economic theory an understanding of the limited processing capacity of the human brain, the reality of complex and costly information, and the manner in which people process such information in day-to-day decision making. These are core issues in behavioral economics. Given such a neurological and informational environment, Hayek argues that evolutionary, bottom-up derived behavioral norms are most reasonable and actually superior to norms constructed by expert design.