Rational choice without closure: the microfoundations of virtuous cycles and vicious circles

Adam Martin

Journal of Economic Methodology, 2011, vol. 18, issue 4, 345-361

Abstract: Economic stories with a rational choice structure usually entail closure or equilibrium. This paper argues that Knightian uncertainty and Kirznerian alertness allow economists to construct plausible accounts of open-ended processes such as virtuous cycles and vicious circles without abandoning the centrality of instrumental rationality. The basic form of such stories is explored and two example cases are put forward.

Date: 2011
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DOI: 10.1080/1350178X.2011.628044

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