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Rationality in Hayek: A cognitive-institutionalist Perspective

Dekker Erwin, Mercatus Center at George Mason University

In their article ‘The Extended Mind’ Andy Clark and David Chalmers proposed active externalism in which the environment functions as a part of the mind. This has given rise to a research program known as ‘4E cognition’: embodied, embedded, enacted, extended cognition. In this paper we argue that this new view of cognition is congruent with the Austrian perspective on knowledge and epistemics and with Hayek’s understanding of the significance of rules and the price system in particular. To develop this argument the paper reinterprets the seminal contributions of Mises and Hayek to the socialist calculation debate to demonstrate that they thought of rationality as a property of the interaction of multiple individuals and an institutional environment, characterized by private property and exchange. This view is in stark contrast to accounts which locate rationality at the level of the individual, and more precisely that of individual choices congruent with some underlying (subjective) preference function. It is argued that Hayek in particular understood rationality as emerging from the interaction between the individual and their environment, so that the price system functions as an extended mind, and knowledge is produced through enactment, as understood in the 4E cognition program in psychology. As Hayek argued, there “was much more 'intelligence' incorporated in the system of rules of conduct than in man’s thoughts about his surroundings” (Hayek 1982, 157). We position our interpretation in contrast to various recent interpretations of Hayek as a precursor to behavioral economics in the Kahnemann and Tversky version. We argue that these accounts wrongly focus only on the subjectivism within the Austrian tradition, and wrongly neglect the broader understanding of rationality as an emergent property, emerging from the interaction between different individuals within particular institutional settings.

Area: Eshet Conference

Keywords: rationality; Hayek; extended mind; behavioral economics; cognitive institutions

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