PreprintPDF Available

Environment as a resource, not a constraint

Authors:

Abstract

In this article I argue that the study of contextual issues in economics has been limited in its scope because economists have mostly conceived of the environment as a constraint on individual action. I identify and discuss three conventions that pull economists into such conceptualization of the environment. For each of the three I provide ways forward for contextual economics to avoid the pull. I then employ insights from the recent cognitive science on socially extended mind to demonstrate how the project of contextual economics as envisioned in this article can benefit from reconceptualizing the environment not as a constraint on individual action but as a resource for constituting socially extended cognitive processes. Rather than being simply about gathering more and better data, contextual economics can offer a powerful approach for studying social world based on entangled interactions between individual actors and their environments.
1
Forthcoming in Journal of Contextual Economics
Environment as a Resource, not a
Constraint
Blaž Remic
Erasmus University Rotterdam
Abstract
In this article I argue that the study of contextual issues in economics has been limited
in its scope because economists have mostly conceived of the environment as a
constraint on individual action. I identify and discuss three conventions that pull
economists into such conceptualization of the environment. For each of the three I
provide ways forward for contextual economics to avoid the pull. I then employ
insights from the recent cognitive science on socially extended mind to demonstrate
how the project of contextual economics as envisioned in this article can benefit from
reconceptualizing the environment not as a constraint on individual action but as a
resource for constituting socially extended cognitive processes. Rather than being
simply about gathering more and better data, contextual economics can offer a
powerful approach for studying social world based on entangled interactions between
individual actors and their environments.
Keywords: Contextual Economics; Behavioral Economics; Methodology; Cognitive Institutions;
Socially Extended Mind; Scientific Integration
JEL code: B41, B53, B59, D02, D91, Z13
Contact: remic@eshcc.eur.nl
2
1 Introduction
In their manifesto for contextual economics, Goldschmidt, Grimmer-Solem, and Zweynert (2016)
argue that the raison d’être of contextual approaches is that mainstream economics has been too
narrow in its scope by relying on an isolated view of individuals and their actions. As such, it has
neglected the importance of the wider social, institutional, and historical context in which those
individuals are embedded. Many might be tempted to agree with this statement immediately.
However, it is actually hard to maintain that contemporary orthodoxy ignores the study of how
environments affect economic outcomes. To the contrary, the study of institutions has been fully
incorporated into the standard economic framework (e.g., Williamson 2000), and orthodoxy has
“pragmatically” accepted behavioral economics’ emphasis on framing and choice architecture
(Chetty 2015). For many economists, doing contextual economics may hardly mean much else
than doing more of what has already been done. On this view, addressing contextual issues is
purely a matter of collecting more and better data. Does this mean, consequently, that there is no
distinct place for a self-consciously contextual approach to economics?
Answering this question requires us to delve deeper into the underlying conceptualization
of context in economics. In this paper I argue that existing mainstream approaches that integrate
contextual issues into economic analysis share a particular perspective: context matters precisely
because it shapes behavioral outcomes by imposing various internal and external constraints on
individual action. Such a perspective, however, is arguably not the only feasible view. The central
methodological question legitimizing a distinct contextual approach to economics should thus not
be whether context matters, but how and why it matters. The aim of this paper is, first, to examine
and refine the “context matters” dictum; and then to suggest a distinct theoretical ground for
contextual economics that differentiates it from existing approaches which analyze environment
as a type of constraint.
The central argument of this paper builds on the assertion by Sturn (2016) that contextual
economics should abandon the notion of economizing within “the orderly world of pure economic
transactions” as its central analytical concern (80). Instead, it should move toward embracing the
analysis of “complex, messy situations” (ibid.). Sturn (2016) argues that the exclusive focus on
economizing has resulted in the neglect of certain types of contexts where scarcity is not the
defining feature but where various non-scarcity interdependencies result in dynamics of increasing
returns. This view, however, still conceives of the environment as having an essentially passive
role. To make progress, I suggest that contextual economics should rather focus on yet a further
type of interdependence wherein the environment becomes an active part in cognitive processes
extending beyond the individual mind. I draw on recent developments in cognitive science based
3
on rejecting the view of cognition as being limited exclusively to the individual brain in favor of
understanding cognition as stemming from interactions between the individual and her
environment. Hence, the discussion in this paper also contributes to the literature on manners in
which economics can be integrated with psychology and cognitive science.
We proceed as follows. Section 2 discusses how context has been conceptualized within
both neoclassical and behavioral economics, thereby identifying a lacuna to be filled by contextual
economics. Section 3 addresses three common-sense conventions implicit in the standard
approaches. These conventions create a pull towards conceptualizing the environment as a
constraint. With regard to each I propose alternative ways forward for contextual economics.
Informed by this discussion, section 4 develops a reconsideration of the role of the environment:
rather than a type of constraint, it should be instead seen as a resource. Section 5 concludes.
2 Circumventing the Perceived Danger of Relativism:
Environment as a Constraint
For many economists, the idea that contextual factors matter for economic analysis carries a seed
of relativism: how are we to do economics as a science if every economic action depends on its
given context? The standard answer to this dilemma circumvents the problem altogether by
focusing on the pure logic of choice: a context-less logic based on the relationships between
abstract entities. In contrast to historians or sociologists, to whom such a perspective more often
than not reveals a particularly limited understanding of the social and economic world, economists’
focus on context-independence in their analysis is a feature and not a bug. It shields analysis from
the dangers of contextual relativism.
Combining the pure logic of choice with the most widely accepted definition of
economics––economics as the study of efficient allocation of scarce resources among competing
ends––the standard analysis treats contextual factors as additional constraining factors on the
efficiency of allocation. In other words, the relationship between the individual agent (or firm) and
her context resembles the way the maze structures and influences the movements of a mouse
trying to reach a snack in the middle of it. Such analysis in economics is mostly cast in terms of
constrained maximization and associated with the so-called economic approach to human
behavior (Becker 1993). This approach has been incredibly successful in generating powerful
accounts of human behavior within a wide range of contextual settings. But maximization must in
the first place, of course, assume something which is being maximized. Most generally, what is
maximized is the utility which the individual gains from satisfying her preferences in the most
4
optimal way possible. Stigler and Becker’s (1977) (in)famous assumption that preferences are given
and fixed has turned the focus exclusively on the analysis of means for achieving the desired goals,
delegating questions about the nature of wants to other disciplines. The individual in standard
economics carefully plans her actions in order to get the most out of what is possible, given the
constraints she is facing.
By concentrating on the properties of this individual and isolated maximizing entity, the
neoclassical perspective has been notoriously a-social and a-cultural. It has prominently neglected
the role of institutions in economic and social life. However, the importance of economizing
remains paramount also for institutionally minded economists (Sturn 2016). For example, in
Williamson’s (2000) institutions-based model of multi-level economizing, higher levels are
imposing constraints on the levels immediately below. From level zero, which consists of the
mechanisms of the mind, to level four, where the everyday continuous marginal adaptation in the
allocation of resources takes place. Characteristically, the hierarchy is linear and the influence
unidirectional: mechanisms of the mind constrain the culture, culture constrains institutions,
institutions constrain governance, and governance constrains the allocation of resources.1 The
purpose of the processes on each level is explicitly tied to solving the optimization problem (i.e.,
“getting it right”) within those constraints. In this framework, the environment is “the rules of the
game” that structure incentives and transactions costs. In turn, incentives and transactions costs
constrain and shape behavior and are thus considered––assuming, of course, that people are
“maximizers [that] maximize, always and everywhere (Leeson 2020, 146, emphasis in original)––as
determining factors for economic and behavioral outcomes. In this sense, such analysis of
institutions stands solidly in the neoclassical tradition of spotlighting relative costs and benefits as
the relevant determinants of behavior. However, as Sturn (2016) points out, the focus on
economizing within constraints has led economists to ignore certain types of contexts where the
relationship between individual agents and their environment is not as straightforward as standard
theory suggests.
A parallel development that forced economists to squarely face the problems of context
occurred through the rise to prominence of behavioral economics. The attempts of behavioral
economists to open up the black box of preferences have corrected some of the aspects of the
1 Although Williamson’s schema in principle allows for feedbacks on every level, they do not enter the
analysis. His justification for this omission is unclear, but he appears to be assuming that on the temporal
scale relevant to his analysis feedbacks do not take place. As he puts it, although, in the fullness of time,
the system is fully interconnected, I mainly neglect these feedbacks (Williamson 2000, 569).
5
standard approach by forcefully showing that revealed preferences are context-dependent.
However, by conceptualizing contextual and environmental influences as exogenous factors,
behavioral economics takes a decisive turn inwards. It focuses on the psychological and cognitive
mechanisms inside the head of the individual, which may lead to biased actions when influenced
by the external context. In contrast to Williamson (2000) who delegates the possible influences of
the mechanisms of the mind only to the pre-cultural level zero, behavioral economists conceive of
psychological constraints as continuously present on the level of everyday decision. Importantly,
these psychological constraints are dependent on the context in which decision-making takes place.
Behavioral economists analyze the different contexts in terms of different frames within which a
decision problem can be presented (Tversky and Kahneman 1981). For example, the way the
choice among various snacks is presented in the supermarket (e.g., by placing them in different
order) will likely affect what the customer will buy. Such examples of individual inconsistency of
choice within different contexts are then used to argue that the environment affects preferences
simply by framing the decision problem differently. And since behavioral economists consider
stability of preferences to be one of the normative hallmarks of rationality, it can be thus said that,
on this view, environment imposes a constraint on rational thinking. Framing effects count as
evidence of context-induced irrational behavior.
Another step away from the isolating view has been described recently as strand two
behavioral economics (Hoff and Stiglitz 2016). This second wave of behavioral economic analysis aims
to break the focus on the individual psychological mechanisms and to branch out into more social
aspects of decision-making. Rather than inherent psychological cognitive biases, it is concepts such
as identity and culture which gain prominence in its analysis. However, the turn inwards remains,
because strand two behavioral economics follows the conventions of cognitive psychology by
conceptualizing culture, social identities, narratives, and other social factors as various mental
models existing in the mind of the individual. Context is thought of as a factor that triggers
particular mental models which the individual then [uses] to process information and interpret
the world” (ibid., 36). Via the concept of mental models, contextual and social factors become
additional arguments in the individual utility function (see ibid., section 5.7). Despite the repeated
claims of the centrality of social interaction for their argument, this over-reliance on cognitive
psychology nevertheless makes strand two behavioral economics vulnerable to the objection raised
by Davis, who argues that “rather than contextualize individuality [these approaches] internalize
sociality by giving the utility function an unmistakably social dimension” (2011, 69, emphasis added).
The preceding overview helps us refine the case for a differentiated approach to contextual
economics. Again, my criticism is not that mainstream economics ignores context. My main
6
objection is that it arrives at it through the individual. It conceptualizes the environment as a
particular constraining factor that has a role in shaping individual behavior. The main constitutive
methodological question for contextual economics as a distinct analytical pursuit can thus be stated
as follows: how should contextual economics go about contextualizing individuality without
reducing to the internalization of sociality? In order to better answer this question, in the following
section we will address in more detail three common-sense assumptions––all implicit in the
standard approaches––that create a strong pull towards the conceptualization of the environment
as a constraint. I argue that these assumptions stand in the way of a more fully contextual approach
to economic analysis. Resolving the problems associated with them will point us toward a more
distinct theoretical foundation for contextual economics.
3 Three Problematic Conventions Underlying the Constraint-
based Views, and How to Overcome Them
Apart from offering powerful analytical tools, conceptualizing the environment as a constraint on
individual action appears to most economists to be a matter of common-sense. However, it is
actually not at all obvious why it should be so. In this section I argue that it appears so
straightforward because economists are pulled into the constraint-based view by tacitly employing
one or more of the following “common-sense” conventions: (i) the obvious first step in the
analysis is to separate and isolate the environmental variables from individual action; (ii) veridical
perception––as reflected in a disinterested representation of a true state of the world––is the gold
standard that characterizes the normative ideal; and (iii) the individual brain, resembling an
input/output machine, is the natural locus of information processing. Granted, all three
conventions are related and overlapping. After all, they all represent a pull towards the same
direction of conceptualizing the environment as a type of constraint. Yet, they relate to different
aspects of thinking about contextual problems: the first relates to the analytical procedure, the
second to the ontology of the environment, and the third to the nature of cognition. I will
problematize each of them in turn and discuss how the proposed alternatives can help us in
reconsidering the central subject matter of contextual economics.
7
3.1 Convention 1: The Analysis Starts by Separating and Isolating the
Variables
The first problem to be emphasized has to do with the fact that in all of the above-mentioned
approaches the individual agent and her environment are assumed to be, at least in principle,
analytically separable and independent. The analysis starts with some form of optimization calculus
at the level of the individual. The environment is broken down into a set of constraining variables,
which are then added to the calculus where they are conceptualized as co-determinants of behavior
in terms of their constraining properties. On this view, environment is an add-on to whatever is
considered rational economic action. Thus, the resulting calculus can be simplistically represented
as: rational action + environmental constraints + cognitive limitations + narratives + In general, the add-
ons are all the elements that complicate the clean and frictionless fundamental picture. This
“rational + x” perspective can be most clearly recognized in standard economic theory, where the
assumption of rationality defines the very nature of the individual agent.
Behavioral economics, however, may seem to be anything but a “rational + x” account,
since it was developed primarily through showing the inadequacy of the rationality assumption.
Yet, the explicit appeal by behavioral economists to the normativity of the rational choice theory
(see, for example, Tversky and Kahneman 1986) reveals the underlying relatedness to neoclassical
analysis (see also Berg and Gigerenzer 2010). Let us again consider the framing effects as an
example. Behavioral economists today typically talk about choice architecture, which refers to the
particular structure of the environment that is explicitly designed and presented to bring about
certain behavioral patterns. Choice architecture can be designed to exploit or to cancel out a
particular cognitive bias that is inherent to the psychology of the agent. On a closer look, however,
behavioral economists appeal to an inner rational agent that serves as an indicator of the individual’s
true preferences against which the outcomes observed in the behavioral experiments are assessed
(Infante, Lecouteux, and Sugden 2016). This inner agent corresponds to the neoclassical image of
a fully rational individual, which makes behavioral economics in its essence a rational + x”
account.2
In neoclassical economics, the important implication of the assertion of analytical
separability is that economic action can be decontextualized in principle. Much of the explanatory
power of its theory derives from the claim of being context-free and thus readily available to be
applied to any specifiable context. Behavioral economists, on the other hand, have shown that
2 For a more exhaustive discussion of framing in behavioral economics, see Rizzo and Whitman (2020,
69-75).
8
behavior is always context-dependent––choice in the supermarket may be rational under one
frame and irrational under another, but it will inevitably have to be presented within some frame.
Decontextualization, however, is relevant in behavioral economics as well. Behavioral analysis
implies that there exists an abstract essence of the problem––knowable to the observing
experimentalist––which can be framed differently in order to measure the framing effects. For
example, in the famous “Linda problem” (Tversky and Kahneman 1983), different frames may
lead the subjects to choose one option or the other. However, what really matters (normatively)
are the underlying logical relationships based on the probability calculus.3 In other words, framing
of the problem is imposed on individual reasoning to divert it away from its logical path.
This discussion touches upon the perennial discussion about the agency/structure dualism
in the social sciences, which revolves around the relationship between “active agents and
constraining social structures” (Loyal 2012, 1). However, Collins argues that this debate mostly
“confuses the distinction of micro/macro with the distinction between what is active and what is
not” (2004, 5), which mistakenly leads the subsequent discussion to be about what it is that propels
the activity forward. In standard economics, this is evident by the centrality of the maximization
assumption that accounts for the “energy” propelling forward the individual action. But, as Collins
points out, this energy is always about the “processes of real human beings doing something in a
situation” (ibid., 5). Resembling the point made by Dewey that “[living] in a world means [to]
live in a series of situations” where the conceptions of situation and of interaction [between
individuals and objects and other persons] are inseparable from each other” (1938, 43), Collins
proposes to start with the situation––rather than the individual––and to focus on the interactions
that constitute and characterize it. As he argues, “we get more by starting with the situation and
developing the individual, than by starting with individuals; and we get emphatically more than by
the usual route of skipping from the individual to the action or cognition that ostensibly belongs
to him or her and bypassing the situation entirely” (Collins 2004, 3).4
3 For a critical discussion of the Linda problem, which emphasizes that people actually use contextual
cues to their advantage rather than being merely misled by them, see Hertwig and Gigerenzer (1999).
4 See also Popper (2013[1945]) arguing that ‘psychological’ part of the explanation is very often trivial, as
compared with the detailed determination of [individuals’] action by what we may call the logic of the
situation (308); Ostrom (2010) on the centrality of action situations for institutional analysis; and Smith
and Wilson (2019), who recently raised a similar objection when arguing that their narrative approach
to experiments is unlike framing, because narratives provide the context in which the decision becomes
meaningful. In other words, a decontextualized problem is meaningless and cannot be used as a
benchmark for the evaluation of framing effects.
9
For contextual economics, the move away from the analytical focus on the properties of
an individual within the exogenously determined context to the focus on the situation and the
interactions within that situation promises a viable way forward in overcoming the internalized
and constraint-based view of the environment. It points to the importance of changing the unit of
analysis. We should not only study the structural characteristics of institutional and social
environments, but the various social practices, relationships, and interactions that define them.
3.2 Convention 2: Veridical Perception Is the Benchmark
The second convention relates to the first one in that they both involve existence of a one-and-
only objective and invariant point of reference. However, rather than stemming from a common-
sense intuition about analytical separability of individual action and external influences, the second
convention has to do with how perception is generally understood. A view to which many
economists tacitly subscribe is “perceptual omniscience or an all-seeing view of perception” (Felin,
Koenderink, and Krueger 2017, 1042). The following quote captures it vividly: “We see correctly––
‘veridically’ is the official term––to the extent that we manage to emulate the All-Seeing Eye. To
the extent that we miss out on this, we live in a state of blindness. To the extent that we deviate
from it, we dwell in a state of illusion. Each equally embarrassing” (Koenderink 2014, 2, emphasis
in original). This implies that there exists an objective picture of the environment, where objectivity
refers to the state of affairs as seen by an omniscient entity. Furthermore, this objective camera-
like picture of the environment defines the benchmark of unbiased perception that forms a basis
for unbiased rational action. The assumption of perceptual omniscience draws the focus of
economists into identifying the conditions that cause individuals to fail to meet the benchmark.
The role of perceptual omniscience is rather explicit in behavioral economics, evident by
the statements such as that we are “blind to the obvious” and by the frequent analogies with visual
illusions (Kahneman 2011; for a discussion see Chater et al. 2018). Thus, the problem to be
explained is agents’ errors in the perception of some obvious and invariant features of their
situation (Tversky and Kahneman 1986). Crucially, these invariant features come to resemble the
axioms of rational choice theory. For example, economic agents are in the framework of behavioral
economics considered boundedly rational (or sometimes even outright irrational) if they attach
utility to relative gains and losses, rather than to the absolute levels of wealth as should be the case
in the expected utility framework. But, as Rizzo and Whitman ask, “why shouldn’t expected utility
agents be considered limited or bounded because they are not sensitive to gains and losses (except
to the extent that they affect absolute levels of wealth)” (2020, 32, emphasis in original)? It does
not obviously follow from the experimental observations that there is some mechanism at work
10
that limits perception and rationality. Felin, Koenderink, and Krueger point out that behavioral
economists, following both Herbert Simon as well as Kahneman and Tversky, treat the
environment as having “a true, actual nature which can be learned over time” (2017, 1044). The
environment is thus supposed to have an objective and invariant existence that can be defined and
measured in absolute terms. Consequently, this objective state of the world as perceived by an
assumed all-seeing eye is adopted as a normative benchmark in behavioral economics. Thus, it is
central for the evaluation of rationality of actions based on such perception.5
But, as Felin, Koenderink, and Krueger argue, “perception necessarily originates from a
perspective, or point of view” (2017, 1049, emphasis added). Consequently, the environmental
cues do not exist independently of the observer. They are, therefore, also not simply given triggers
for particular mental models, as proposed by strand two behavioral economics. In order to
perceive contextual cues as relevant, agents first need to conceive of them as cues in the first place.
This becomes clear when applied to the issue of entrepreneurship. As Lavoie argues in his
discussion on the discovery of entrepreneurial profit opportunities, “entrepreneurship is not a
matter of opening one’s eyes, of switching on one’s attentiveness; it requires directing one’s gaze”
(2015[1991], 59). Perceiving an opportunity as an opportunity means interpreting it as such. And
context plays a crucial role in the process of interpretation “because it gives meaning to outcomes”
(Smith and Wilson 2019, 159). However, the interpretation does not happen ex nihilo. The
entrepreneur interprets profit opportunities by relying on a specific pre-existing cultural framework
that enables her to direct her attention. Similarly, Boltanski and Thévenot claim that “subjects do
not constitute the meaning of a scene by the gazes they bring to bear on it” (2006, 144) but that
what we perceive is mostly pre-interpreted. In their view, people have no choice but to perceive
things in certain ways or notice what is relevant in a situation, because interpretation is directed by
the particular province of meaning (Schutz 1962) that the agent relies upon in a given situation.
The emphasis that we simultaneously live and act in different worlds, each governed by its
own distinct logic, provides a clear alternative to the perspective of omniscience.6 Rather than
assuming that the problem is how to access the invariant objective reality blocked by a variety of
5 Gerd Gigerenzer claims that one of the main points that differentiates his proposed alternative to
standard behavioral economics is that in his account heuristics are “functional, not veridical” (Chater et al.
2018, 801). However, the emphasis on functionality does not rule out the constraint-based view of the
environment.
6 Variations of this perspective are found in Schutz (1962) on multiple realities, Thévenot (2001) on
pragmatic regimes, Boltanski and Thévenot (2006) on worlds of justification, and Thornton, Ocasio, and
Lounsbury (2012) on institutional logics.
11
interfering factors––which creates a strong pull toward the constraint-based view––the starting
problem of this perspective is to determine the particular interpretive framework that agents rely
upon in making sense of their situation, which influences the very meaning of rational action within
a particular logic.7 Researchers cannot rely on their own common-sense notions of what matters
in particular situations (Smith and Wilson 2019). An opportunity for contextual economics thus
lies in utilizing the “multiple worlds” perspective in order to bring the analytical focus to the
interpretive dynamics taking place between and within the plurality of different provinces of
meaning that economic agents inhabit.
3.3 Convention 3: Cognition Is a Matter of the Mental Processes in
Individual Minds
When discussing the possible reasons for why philosophers and economists are often drawn to
the idea of an inner rational agent who is affected by the “alien” (to him or her) constraining
psychological forces, Sugden (2018, 66) speculates that this may be due to the tacit acceptance of
a particular view of human mind and cognition. According to this view––consistent with the so-
called cognitivist paradigm in cognitive science8 ––cognition refers to the processes of symbolic
manipulation of the internal representations of reality, where these processes are ontologically
linked exclusively to what happens in the brain (Newen, Gallagher, and De Bruin 2018). In line
with this internalist and representationalist view of cognition as software running on the hardware
of the brain, economists usually conceive of the individual agent as an input-output machine that
takes the input received from the environment through the senses and––combined with existing
preferences––transforms it into plans of action directed at preference-satisfying behavior (Ross
2014). Psychological realism claimed by behavioral economists comes from separating mistakes
and true preferences, but the basic image remains the same: cognitive biases are a case of bad
software (Lecouteux 2016).
7 The institutional logics literature makes it explicit that it is not only about institutions as constraints:
Institutional logics represent frames of reference that condition actors’ choices for sense-making, the
vocabulary they use to motivate action, and their sense of self and identity. The principles, practices, and
symbols of each institutional order differentially shape how reasoning takes place and how rationality is perceived and
experienced (Thornton, Ocasio, and Lounsbury 2012, 2, emphasis added).
8 For the discussion of the core tenets of cognitivism, including its “deliberate decision to de-emphasize
certain factors [including] the contribution of historical and cultural factors, and the role of the
background context in which particular actions or thoughts occur,” see Núñez et al. (2019, 783).
12
The internalist view can be contrasted with the view of cognition as extending into the
world rather than being confined to the processes in the head. The so-called extended mind
hypothesis (Clark and Chalmers 1998) is part of a family of related approaches in recent cognitive
science that emerged out of the “immanent critique” of the brain-bound and representationalist
view of cognition within the cognitivist paradigm (for overviews see Wilson 2002; Robbins and
Aydede 2009; Newen, Gallagher, and De Bruin 2018).9 The central argument of the extended mind
hypothesis is the so-called parity principle: “If, as we confront some task, a part of the world
functions as a process which, were it done in the head, we would have no hesitation in recognizing
as part of the cognitive process, then that part of the world is (so we claim) part of the cognitive
process” (Clark and Chalmers 1998, 8). The classic examples of such extended cognitive processes
include paper-and-pencil calculations, where the cognitive process of calculation cannot be
separated from the external artefact; and relying on notes for the retrieval of information, where
it is argued that the process is essentially the same whether I engage with either the memories
stored in my brain or in the notebook.
However, the idea of extended cognitive processes does not apply only to various physical
tools and technologies as the vehicles of extension. It applies also to other minds we interact with,
institutions, and social practices. This is captured by the notion of the socially extended mind
(Gallagher 2013), which suggests that cognition should be looked at “in terms of activities and
processes, such as problem-solving, decision-making, judgment, etc.” (Petracca and Gallagher
2020, 7). On this view, cognition is extended when the individual agent “couples with” an
institution or practice. At the center of this approach are the so-called cognitive institutions that
“consist of those practices, rules and structures that have been instituted for cognitive purposes
(such as making judgments, making decisions and solving problems)” and without which “specific
classes of cognitive processes would simply not exist” (Slaby and Gallagher 2016, 33-4; for an
application to economics see Gallagher, Mastrogiorgio, and Petracca 2019, and Petracca and
9 This family of approaches is not entirely coherent, and researchers working within the paradigm vary
considerably in their commitment to the relative strength of the claims. The perspective is thus far from
settled. However, the approaches share a common thread of thinking of cognition as not bound to the
mental processes in the head. At the moment, the whole family of approaches is gathered most
comprehensively under the umbrella term 4E cognition, standing for embodied, embedded, extended, and enacted
cognition (see Newen, Gallagher, and De Bruin 2018). Acknowledging the role of embodiment, the
nuances in the level of extendedness, and the question whether the extended mind hypothesis
nevertheless still assumes the center of cognition to be in the head, this paper adopts the term ‘extended
mind’ as a colloquial term to refer to the whole paradigm.
13
Gallagher 2020). A typical example is the legal system, which is not just a set of rules governing
our actions but a set of institutions that make legal reasoning possible in the first place. By engaging
with these institutions through various practices––such as contracting, court procedures, and
argumentation––one “plugs into” the system and so extends one’s cognitive problem-solving
ability.10 In stark contrast to the cognitivist account that conceives of cognition primarily in terms
of computational processes, cognition in the (socially) extended mind approach refers to a process
of active engagement with the (social) environment.
This points to the pragmatist roots of the extended mind approach. For pragmatists like
Dewey, cognition is a form of action in the environment (Gallagher 2009), which implies a more
direct engagement with the world than the cognitivist Cartesian vision based purely on inner
mental processes. Accordingly, the individual agent perceives the environment directly by way of
the potential actions that the environment makes possible. That is, in terms of affordances (Gibson
2015 [1979]).11 This suggests that it is not only various physical tools and technologies, but also
other people, social and institutional structures, and abstract categories (Felin et al. 2016) which
can offer possibilities for interaction and engagement as a direct part of extended problem-solving
cognitive process (Petracca and Gallagher 2020). The pragmatist emphasis on action,
environmental affordances, and direct perception also means that much of what we do does not
involve any contemplation about the aspects of the environment with which we are interacting.
As I am finishing this paragraph, I am not thinking about the keyboard under my fingers; I write.
When I present a paper at a seminar as part of the development of my ideas, my activity is not the
result of processing the mental representations of the academic conventions and the institutional
structure of the university; I simply discuss with my peers, which is a result of directly perceiving,
and acting on, the social affordances made possible by both the institutional (and social)
environment of the university department and the practice of a university seminar.
10 “Contracts are institutions that embody conceptual schemas that, in turn, contribute to and shape our
cognitive processes. They are not only the product of certain cognitive exercises but are also used as tools
to accomplish certain aims, to reinforce certain behaviors, and to solve certain problems. Institutions of
property, contract, rights, and law not only guide our thinking about social arrangements, for example, or
about what we can and cannot do, but allow us to think in ways that were not possible without such institutions.
Insofar as we cognitively engage with such tools and institutions we extend and transform our cognitive
processes” (Gallagher 2013, 6, emphasis added).
11 Pezzulo and Cisek define an affordance as a “potential action that is made possible to an agent by the
environment around it (2016, 415).
14
There are two related implications of accepting cognition as extending into the world,
which point to a promising way forward for contextual economics. First, the perspective implies
a different kind of interdependence: individual-environment cognitive couplings. Due to the non-
computational and non-representational nature of the (socially) extended cognitive process, the
dynamics of such couplings are simply intractable from the perspective of the standard framework.
Contextual economics could explicitly study the situations and contexts where direct interactions
between the individual and the environment are central. The second take-away from accepting this
position is that cognitive processes do not refer only to computational processes. For economics,
this means that the act of economizing should be rethought. For what is economic action if it is
not some kind of calculation of costs and benefits, if it is not maximization within a set of
constraints? The following section offers a reconsideration of the role of the environment that
utilizes the discussed alternatives to the unit of analysis, to perception, and to cognition, in order
to propose a view of the environment not as a constraint but, rather, as a resource.
4 “Context Matters” Reconsidered: Environment as a Resource
In section 1 we defined the methodological challenge of contextual economics to be how to
contextualize individuality without relying on reductive internalization––a common characteristic
of a social utility function––of environmental and social constraints. In this section we reconsider
the “context matters” dictum in light of this challenge. The aim is to shift the emphasis in the
understanding of the role of the environment from a passive constraint on individual action to an
active factor in the constitution and carrying out of cognitive processes. The argument develops
through three stages, progressing from conceptualizing environment as a resource of potential
actions; through acknowledging the (often distributed) knowledge embodied in its various
components; to, finally, emphasizing environment as providing resources for constituting socially
extended cognitive processes.
4.1 Environment Is an Expanding Opportunity Set of Potential Actions
Our discussion in the previous section revealed the important role of the environment in making
possible various affordances––or potential actions––that individual agents can directly engage with
in the process of (social) interaction. This is the view of environment as an affordance landscape
(Pezzulo and Cisek 2016), which “can be physical, but also social and cultural” (Gallagher 2017,
174). To emphasize the economically relevant dimension of choice among various options, I will
describe this conception of the environment as an opportunity set of potential actions.
15
This opportunity set is, however, far from static or given. Developmental researchers
studying humans’ ability to interact with each other have argued that “infants gradually learn about
their world through learning the interactive potential of aspects of this world. They learn what they
can do with it and how it reacts, that is, what happens as a result of their actions. They come to
perceive their world in terms of potential actions” (Carpendale, Frayn, and Kucharczyk 2016, 195).
It probably comes as no surprise that discovery and learning feature heavily in developmental
studies, but for us this helps to emphasize an important additional point about the nature of the
environment as an opportunity set of potential actions: it is ever-expanding, based on learning and
discovery that occurs as agents are acting and interacting within it. When we are acting and
interacting in the world, the environment, more importantly than simply providing a set of
constraints, serves as a learning ground for discovering potential actions it affords. Thus, the
expansion of the opportunity set does not occur as a result of an exogenous change in the structure
of the environment, but rather as a result of learning and discovery of the interacting potentialities
it offers.
However, being good in social practices and interactions goes beyond only knowing the
correct code or script. This means that the learning process is not about uncovering rules for more
successful interaction, but about developing expertise in what Dreyfus (2014) referred to as skillful
coping: the state of being absorbed in an interactive situation. In the well-known model of skill
acquisition, Dreyfus and Dreyfus argue that rules-based systems cannot capture expertise, “since
expertise is based on the making of immediate, unreflective situational responses” (2005, 779).
Learning to directly perceive the social affordances that are tied to specific situations, and how to
exploit them, requires the agent to acquire a certain level of expertise in the (social) practice.
Following context-free rules is a sign that the agent has not yet gained understanding of the
relevant context, and it is thus a characteristic behavior of a novice.12 This adds an interesting
perspective to the characterization of the standard neoclassical economic agent, where the ability
to stick to context-free rules is a hallmark of rationality. Therefore, institutions analyzed as a set of
rules will only ever offer a partial answer. Granted, a novice needs rules because she does not yet
know what is relevant. In this sense, rules are important on the basic level because they help to
stabilize interactions in a specific context (Linson et al. 2018). But an important implication for
economics is that learning the rules alone does not uncover the relevant incentives, because only
12 “Normally, the instruction process begins with the instructor decomposing the task environment into
context-free features that the beginner can recognize without the desired skill. The beginner is then given
rules for determining actions on the basis of these features, like a computer following a program (ibid.,
782).
16
when the agent masters the skills that enable her to perceive what the environment affords will
she be able to fully understand the activity. And such an understanding is a prerequisite for
interpreting the meaning of the relevant incentives in a given situation.
In addition to not being static and given, the environment as an expanding opportunity set
of potential actions also does not have any objective existence in the sense of being perceivable by
an omniscient being. As emphasized above, the pragmatist emphasis on skillful coping when
dealing with the world brings attention to the continuous process of learning and developing new
ways of engaging with the world. But rather than learning as a process of uncovering true and
objective underlying features of the environment, this implies learning as a creative process of
discovery of previously non-existent opportunities. As Felin et al. (2016) argue, “uses are not
ontological properties of a resource per se, but rather are attributions of specific actors, to the extent
actors perceive resources––as affordances––by means of potential uses that such resources enable”
(138, emphasis added). This aspect is obviously important for the study of entrepreneurship
(Koppl et al. 2016), particularly as related to the emergence of latent markets (Cazzola Gatti et al.
2020), since the perception of entrepreneurial opportunities and the ability to act on them are
highly dependent on the level of skill an actor possesses. But it is also highly relevant for our
understanding of organizational dynamics.
To see this more clearly, we first need to reconceptualize the idea of work from maximizing
some objective function to perfecting one’s craft (Klamer 2016). For example, a librarian working
within organizational and institutional structure of a library is continuously acquiring particular
knowledge of time and place (Hayek 1945) and gradually becoming more and more competent at
her job. As she is perfecting her craft of librarianship, she is also both discovering and expanding
the scope of possible actions and interactions within the practice and within what the library as an
institutional and organizational environment makes possible, which is leading her to further
discover what it means to be a good librarian. But crucially, this process has important spillovers
for the organization as a whole. Expanding the opportunity set of potential actions means opening
up new lines of work, which in turn creates a positive feedback loop of further specialization and
division of labor. Organizational development is thus directly linked to the ability of the
organizational infrastructure to afford active engagement and skill development.
We do not only use environment, however, but also actively create and shape it to serve
our cognitive needs. In this sense, institutions are resources that have a particular mode of being
produced, maintained, and reproduced (Dekker and Kuchar 2020), which has a dynamic that is
quite different from the standard thinking about the diminishing returns from a fixed factor. The
central role of action and interaction in developing and sustaining institutional resources makes
17
such resources shared goods (Klamer 2016). The counterintuitive characteristic of such goods––
for example, friendships or conversations––is that as you use them, you actually have more of
them. Such increasing returns dynamic is central to understanding the environment in an active
way as an expanding opportunity set of potential actions.
4.2 Environment Serves as an External Resource of Embodied Knowledge
Skillful action and interaction are not all that exists concerning the active engagement between
individual and environment. Extended cognitive processes crucially rely on “external (and
conventional) cognitive schemas and rules provided by the institution itself” (Gallagher
2020, 214). These conventions are resources of embodied knowledge that emerge in the workings
of an institution. Let us consider an example. As one walks into a bookstore, one is faced with the
problem of how to buy. Simply contemplating the thousands of available titles, potentially on
different media, can be an overwhelming experience. However, the spatial layout of the shop,
various sorts of lists and rankings, and different product categories that establish and qualify
relationships and groupings, all help in guiding one towards solving the problem. As such, they are
all vital parts of the practice of buying. Context clearly matters because it provides the proper cues,
established through previous practice, which help one solve the problem by simplifying the
cognitive load.
This aspect of environment is explicit in the idea of prices aggregating and communicating
the knowledge dispersed throughout the economy, where the knowledge of the relative scarcities
and desirabilities of goods is distilled to a single number (Hayek 1945). But viable knowledge can
also be embodied in various cultural practices, such as the practice of people forming a queue
(Hutchins 2014). Forming a queue goes beyond a mere array of people. A queue clearly indicates
the point of service, lets everyone know who comes next, who came before whom, and how long
it will approximately take to get to service. It is not simply an external source of information, but
a participatory device that actively helps in solving a coordination problem. In a similar sense, a
book review is a judgment device that plays a vital role in solving the uncertainty problem in the
market for books by serving as a guidepost that helps orient the actions of consumers (Karpik
2010). Dekker and Kuchar (2020) argue that these judgment devices and cognitive practices are
instruments of interpretation: institutional elements that are particularly important because they enable
interpretation that is “needed to transform [the] institutional sources of information into
knowledge that can guide action” (31). As such, they are pivotal in making institutions effective in
Lachmann’s (1971) sense: as signposts that orient individual plans and form expectations about
18
the future actions of others. On this view, the environment consists of social and institutional
resources that we may draw on when we need them to tell us what to do.
Interpretation having such a central role in the process raises two problems, however, that
need to be addressed. The first is how and why people understand the devices and practices in
particular ways? Why does a queue embody the order of arrival? And how do we tell when to ask
for a friend’s recommendation for a good book and when to consult a critical consensus among
the experts? This implies that there exists a more or less tacit (intersubjective) understanding of
cultural practices, institutions, and judgment devices. In other words, the world mostly descends
on us in pre-interpreted fashion and ready for use. This underlies the importance of the processes
of socialization and initiation (Gallagher 2020; see also Smith and Wilson (2019) on the role of
maturation in the formation of moral sentiments). As Zawidzki (2013) argues, the general relevance
of such processes is that they homogenize us as members of the community of interpreters by
providing us with a common interpretive framework within which the shared interpretation
instruments can indeed serve as vehicles of extended cognitive processes and which have
coordinating powers.
While stable meanings are important prerequisites for institutions to be successful as
coordinating devices, interpretive frameworks are never fixed. The second problem is thus that
there is always a latent possibility for circumventing the norms that homogenize the social world,
or for applying a different interpretive framework. This means that situations that shake the
stability of accepted meanings will be especially interesting topics of study. In such conflictual
situations, the different interpretive frameworks which are employed by the interacting agents are
revealed, and a reconciliation is required in order to solve the problem (Boltanski and Thévenot
2006). Importantly, the solution to a problem does not depend on any notion of veridicality with
respect to the interpretive framework. Rather, it resembles a game-theoretic convergence: actors
must simply reach a common agreement on what the right framework is. In such moments, the
important question is not only how people choose the proper framework, but which interpretive
frameworks are at their disposal? This suggests that another important potential research topic for
contextual economics is to study the unequal distribution of access to available interpretive
frameworks.
4.3 Environment Has an Active Role in the Cognitive Processes
As discussed above, the socially extended mind perspective suggests that cognition should be
understood in terms of various interactive problem-solving processes that are constituted as the
individual agents act and interact within so-called cognitive institutions. We thus move away from
19
the “rational + x” model (where the environment is conceptualized as a variable in the individual
maximizing calculus) to the idea of the environment and the individual agent as being coupled and
entangled to such extent that a particular cognitive process can only take place through this
coupling. However, it is not only that institutions have a constitutive role in cognition. New
institutional resources are constantly emerging through these actions and interactions. This means
that the individual-environment coupling is bi-directional: individual actions and interactions shape
the various rules and practices which, in turn, shape the subsequent actions and interactions. For
example, a music chart, which serves as a judgment device for the individual buyer making a
purchasing decision, is simultaneously transformed in the process. The chart thus reflects and
embodies decision-making processes of all the individuals that engaged with it up to the present
moment.
There are two interesting issues that arise as a consequence of this bi-directional influence
taking place through interaction. One is methodological, the other conceptual. Concerning the
former, the general challenge of extended cognition approaches based on individual-environment
couplings is that, because the “agent and environment exert continuous and mutual causal
influence on each other agent and environment cannot be modeled as separate systems. They
are instead best modeled as a single extended cognitive system” (Kiverstein 2018, 4). Similarly,
Ross rejects “descriptive individualism” on the grounds that “our economically interesting
preferences are generated in and by the social and material marketplaces where we interact”
(2014, 311). And Davis (2016) suggests that, since individuals are constituted (individuated)
through their relations to others and their environment, this may call for a reconsideration of the
relevant unit of analysis. Individuals and their environment should perhaps be studied jointly. This
raises a practical issue of how to actually go about such an approach. The discussion in this paper
suggests that one possible answer to this––and a viable strategy for contextual economic research
is to shift the focus from studying the mechanics of individual actions and decisions to studying
situated social practices in which individuals engage when pursuing their cognitive goals. The
concept of social practices implies both individual actions and particular situations in which they
take place, yet it is not reductionistic in terms of getting to the environment through the individual.
Within a practice perspective, the elements of the environment––such as conventions, judgment
devices, and other instruments of interpretation––play an active role in the analysis and are not
subordinated to the individual choice calculus.
The relevant conceptual issue follows from recognizing that the continuous bi-directional
transformation implies a central role of action and interaction in the process. In this regard,
Petracca and Gallagher point out that once we acknowledge the centrality of social interactions
20
and of the dynamical notion of constitution, institutions are no longer understood, as in Denzau
and North and as in Clark, as structures that merely constrain and enable individual actions” (2020,
16).13 But, how should institutions be understood instead? The answer suggested by the literature
on cognitive institutions is to shift the understanding of institutions from shared mental models14 to
shared mental processes.15 This conceptual change shifts the focus from analyzing the effects of the
institutional structure on the individual agent to understanding the dynamics of the knowledge
embodied in various institutional elements as the result of continuous actions and interactions.
The answer to our initial methodological question of how to properly contextualize
individuality thus suggests two ways forward: on the one hand, contextual economics would
benefit from studying situated social practices and other resources for extended cognitive
processes as the relevant units of analysis. On the other hand, the way forward is opened up by
conceptualizing institutions as shared mental processes. In both cases, the mechanics of individual
action and decision-making are not at the center. Rather, the interactive aspects of the relationship
between the individual and the environment are. And in both cases, it is required that we shift our
understanding of environment from the conception of a constraint to the conception of a resource.
13 The reference to Clark in this quote is (mostly) about his landmark book Being There (1997) where––
influenced by the conversations he had with Douglass North––Clark develops the notion of scaffolding
institutions. This notion, however, still views institutions essentially as constraints.
14 “Institutions are the rules of the game of a society and consist of formal and informal constraints
constructed to order interpersonal relationships. The mental models are the internal representations that
individual cognitive systems create to interpret the environment; the institutions are the external (to the
mind) mechanisms individuals create to structure and order the environment” (Denzau and North 1994,
4).
15 “If we think of the mind not as a repository of propositional attitudes and information, or in terms of
internal belief-desire psychology, but as a dynamic process involved in solving problems and controlling
behavior and action––in dialectical, transformative relations with the environment––then we extend our
cognitive reach by engaging with tools, technologies, but also with institutions. We create these
institutions via our own (shared) mental processes, or we inherit them as products constituted in mental
processes already accomplished by others. We then engage with these institutions––and in doing so,
participate with others––to do further cognitive work. These socially established institutions sometimes
constitute, sometimes facilitate, and sometimes impede, but in each case enable and shape our cognitive
interactions with other people” (Gallagher 2013, 7).
21
5 Conclusion
I have argued in this article that taking contextualism in economics seriously entails going beyond
viewing the environment as a constraining variable in the individual agent’s decision-making
calculus aimed at maximization. We cannot understand the social world by analyzing context into
individuals minds. Proper contextualization of individuality implies a move away from the
analytical focus on stable preferences as the benchmark for rational action towards a focus on
stable situations and practices providing sense-making settings for meaningful action and
interaction. Such a move enables a much broader understanding of social dynamics which takes
place as agents interact with each other and with their environment, engage in various problem-
solving social practices, and build relationships that define their roles within the processes of social
interaction. In order to make this move, however, we must understand cognition not as an internal
process performed by individual brains, but as a process that extends across interacting individuals,
elements of their environment, and the various practices that shape action and interaction. This
article has demonstrated that context matters because the environment is a resource for extended
and shared cognitive processes.
Viewing the environment as having a constitutive role in cognitive processes, rather than
as simply being an add-on to individual action, has important consequences not only for the
understanding of interactive and organizational dynamics on the micro-scale, but also for
understanding the developments at the macro-level of society and culture. As society becomes
more complex, the opportunity set of potential actions afforded by the social environment expands
as well. A complex society involves a broad variety of interactive situations that afford a large
number of possible individual-environment cognitive couplings. Contextual economics, as
envisioned in this article, contributes to understanding dynamics on both micro- and macro-levels
and provides a framework for a comprehensive study of complex social processes.
This new vision of contextual economics transcends the standard institutional critique of
neoclassical economics by incorporating the continuous bi-directional transformative influence
between the individual and her institutional environment. Moreover, it transcends the
psychological critique by showing how individual psychology and cognition are entangled with the
environment through situated social practices and interactions. Contextual economics thus
conceived also raises a larger question of whether we must abandon some of our methodological
commitments, such as methodological individualism or the explanatory focus on optimization or
rule-following. The conceptual shift from institutions as shared mental models to institutions as
shared mental processes entails the impossibility of treating agents and environments as separate
systems. However, if the environment not only helps individuals to achieve their goals and
22
provides the information and rules that the individual actors employ in their planning, but rather
plays a constitutive role in cognitive problem-solving processes, then caution is warranted about
the relevant unit of analysis from a methodological perspective. Thus, the first step when doing
contextual economics might be to take seriously the possibility that the properties of an individual
agent––irrespective whether actual or representative––might not be the appropriate starting point
for analysis.
References
Becker, G. S. 1993. The economic way of looking at behavior. Journal of Political Economy, 101(3):
385409.
Berg, N. and G. Gigerenzer 2010. As-if behavioral economics: neoclassical economics in disguise?
History of Economic Ideas, 18(1): 133165.
Boltanski, L. and L. Thévenot 2006. On justification: Economies of worth. Princeton: Princeton
University Press.
Carpendale, J. I. M., M. Frayn, and P. Kucharczyk 2016. The social formation of human minds. In
The Routledge handbook of philosophy of the social mind, edited by J. Kieverstein. London:
Routledge.
Cazzolla Gatti, R., R. Koppl, B. D. Fath, S. Kauffman, W. Hordijk, and R. E. Ulanowicz 2020. On
the emergence of ecological na economic niches. Journal of Bioeconomics, 22: 99-127.
Chater, N. et al. 2018. Mind, rationality, and cognition: an interdisciplinary debate. Psychonomic
Bulletin and Review, 25: 793826.
Chetty, R. 2015. Behavioral economics and public policy: a pragmatic perspective. American
Economic Review: Papers & Proceedings 2015, 105(5): 133.
Clark, A. 1997. Being there: Putting brain, body, and world together again. Cambridge, MA: MIT Press.
Clark, A. and D. Chalmers 1998. The extended mind. Analysis, 58(1): 719.
Collins, R. 2004. Interaction ritual chains. Princeton, N.J.: Princeton University Press.
Davis, J. B. 2011. Individuals and identity in economics. Cambridge: Cambridge University Press.
Davis, J. B. 2016. Economics, neuroeconomics, and the problem of identity. Schmollers Jahrbuch,
136: 1532.
Dekker, E. and P. Kuchar 2020. Lachmann and Shackle: on the joint production of interpretation
instruments. Research in the History of Economic Thought and Methodology, 37B: 2542.
Denzau, A. T. and D. C. North 1994. Shared mental models: ideologies and institutions. Kyklos,
47 (1): 331.
23
Dewey, J. 1938. Experience and education. New York: Macmillan.
Dreyfus, H. L. 2014. Skillful coping: Essays on the phenomenology of everyday perception and action. Oxford:
Oxford University Press.
Dreyfus, H. L. and S. E. Dreyfus 2005. Expertise in real world contexts. Organisation Studies, 26(5):
779792.
Felin, T., S. Kauffman, A. Mastrogiorgio, and Mastrogiorgio, M. 2016. Factor markets, actors, and
affordances. Industrial and Corporate Change, 25(1): 133147.
Felin, T., J. Koenderink, and J. I. Krueger 2017. Rationality, perception, and the all-seeing eye.
Psychonomic Bulletin and Review, 24: 10401059.
Gallagher, S. 2009. Philosophical antecedents of situated cognition. In The Cambridge Handbook of
situated cognition, edited by P. Robbins and M. Aydede. Cambridge: Cambridge University
Press.
Gallagher, S. 2013. The socially extended mind. Cognitive Systems Research, 25-26: 412.
Gallagher, S. 2017. Enactivist interventions: Rethinking the mind. Oxford: Oxford University Press.
Gallagher, S. 2020. Action and interaction. Oxford: Oxford University Press.
Gallagher, S., A. Mastrogiorgio, and E. Petracca 2019. Economic reasoning and interaction in
socially extended market institutions. Frontiers in Psychology, 10: 112.
Gibson, J. J. 2015 [1979]. The ecological approach to visual perception. Classic edition. New York:
Psychology Press.
Goldschmidt, N., E. Grimmer-Solem, and J. Zweynert 2016. On the purpose and aims of the
Journal of Contextual Economics. Schmollers Jahrbuch, 136: 114.
Hayek, F. A. 1945. The use of knowledge in society. The American Economic Review, 35(4): 519530.
Hertwig, R. and G. Gigerenzer 1999. The ‘conjunction fallacy’ revisited: how intelligent inferences
look like reasoning errors. Journal of Behavioral Decision Making, 12: 275305.
Hoff, K. and J. E. Stiglitz 2016. Striving for balance in economics: towards a theory of the social
determination of behavior. Journal of Economic Behavior & Organization, 126: 2557.
Hutchins, E. 2014. The cultural ecosystem of human cognition. Philosophical Psychology, 27(1): 34
49.
Infante, G., G. Lecouteux, and R. Sugden 2016. Preference purification and the inner rational
agent: A critique of the conventional wisdom of behavioural welfare economics. Journal
of Economic Methodology, 23(1): 125.
Kahneman, D. 2011. Thinking, fast and slow. New York: Farrar, Straus and Giroux.
Karpik, L. 2010. Valuing the unique: The economics of singularities. Princeton: Princeton University Press.
24
Kieverstein, J. 2018. Extended cognition. In The Oxford Handbook of 4E cognition, edited by A.
Newen, S. Gallagher, and L. De Bruin. Oxford: Oxford University Press.
Klamer, A. 2016. Doing the right thing: A value based economy. London: Ubiquity Press.
Koenderink, J. 2014. The all-seeing eye? Perception, 43: 16.
Koppl, R., S. Kauffman, T. Felin, and G. Longo 2015. Economics for a creative world. Journal of
Institutional Economics, 11(1): 1-31.
Lachmann, L. M. 1971. The legacy of Max Weber. Berkeley: Glendessary Press.
Lavoie, D. 2015 [1991]. The discovery and interpretation of profit opportunities: culture and the
Kirznerian entrepreneur. In Culture and economic action, edited by L. E. Grube and V. H.
Storr. Cheltenham: Edward Elgar.
Lecouteux, G. 2016. From homo economicus to homo psychologicus: the Paretian foundations
of behavioral paternalism. Oeconomia, 6(2): 175200.
Leeson, P. 2020. Logic is a harsh mistress: welfare economics for economists. Journal of Institutional
Economics, 16(2), 145150.
Linson, A., A. Clark, S. Ramamoorthy, and K. Friston 2018. The active inference approach to
ecological perception: general information dynamics for natural and artificial embodied
cognition. Frontiers in Robotics and AI.
Loyal, S. 2012. Agency-structure. In The Wiley-Blackwell Encyclopedia of globalization, First Edition,
edited by G. Ritzer. Blackwell Publishing.
Newen, A., S. Gallagher, and L. De Bruin 2018. 4E cognition: Historical roots, key concepts, and
central issues. In The Oxford Handbook of 4E cognition, edited by A. Newen, S. Gallagher,
and L. De Bruin. Oxford: Oxford University Press.
Núñez, R., M. Allen, R. Gao, C. Miller Rigoli, J. Relaford-Doyle, and A. Semenuks 2019. What
happened to cognitive science? Nature Human Behavior, 3: 782791.
Ostrom, E. 2010. Beyond markets and states. The American Economic Review, 100: 641672.
Petracca, E. and S. Gallagher 2020. Economic cognitive institutions. Journal of Institutional Economics.
Pezzulo, G. and P. Cisek 2016. Navigating the affordance landscape: Feedback control as a
process model of behavior and cognition. Trends in Cognitive Sciences, 20(6): 414424.
Popper, K. R. 2013[1945]. The open society and its enemies. Princeton: Princeton University Press.
Rizzo, M. J. and G. Whitman 2020. Escaping paternalism: Rationality, behavioral economics, and public
policy. Cambridge: Cambridge University Press.
Robbins, P. and M. Aydede 2009. The Cambridge Handbook of situated cognition. Cambridge:
Cambridge University Press.
Ross, D. 2014. Philosophy of economics. London: Palgrave Macmillan.
25
Schutz, A. 1962. Collected papers I: The problem of social reality. The Hague: Martinus Nijhoff.
Slaby, J. and S. Gallagher 2015. Critical neuroscience and socially extended minds. Theory, Culture
& Society, 32(1): 3359.
Smith, V. L. and B. J. Wilson 2019. Humanomics: Moral Sentiments and the Wealth of Nations for the
Twenty-First Century. Cambridge: Cambridge University Press.
Stigler, G. J. and G. S. Becker 1977. De gustibus non est disputandum. The American Economic
Review, 67(2): 7690.
Sturn, R. 2016. Scarce means, competing ends: Lord Robbins and the foundations of contextual
economics. Schmollers Jahrbuch, 136: 5986
Sugden, R. 2018. The community of advantage: A behavioural economist s defence of the market. Oxford:
Oxford University Press.
Thévenot, L. 2001. Pragmatic regimes governing the engagement with the world. In The practice
turn in contemporary theory, edited by T. R. Schatzki, K. Knorr-Cetina, and E. von Savigny.
London: Routledge.
Thornton, P. H., W. Ocasio, and M. Lounsbury 2012. The institutional logics perspective: A new approach
to culture, structure, and process. Oxford: Oxford University Press.
Tversky, A. and D. Kahneman 1981. The framing of decisions and the psychology of choice.
Science, New Series, 211(4481): 453458.
Tversky, A. and D. Kahneman 1983. Extensional versus intuitive reasoning: The conjunction
fallacy in probability judgment. Psychological Review, 90(4): 293315.
Tversky, A. and D. Kahneman 1986. Rational choice and the framing of decisions. Journal of
Business, 59(4): S251S278.
Williamson, O. 2000. The new institutional economics: Taking stock and looking ahead. Journal of
Economic Literature, 38: 595613.
Wilson, M. 2002. Six views of embodied cognition. Psychonomic Bulletin and Review, 9(4): 625636.
Zawidzki, T. 2013. Mindshaping: A new framework for understanding human social cognition. Cambridge:
The MIT Press.
ResearchGate has not been able to resolve any citations for this publication.
Article
Full-text available
The origin of economic niches, conceived as potential markets, has been mostly neglected in economic theory. Ecological niches emerge as new species evolve and fit into a web of interactions, and the more species come into existence, the more (exponentially or power-law distributed) ecological niches emerge. In parallel fashion, economic niches emerge with new goods, and niche formation in economics is also exponentially or power-law distributed. In economics and ecology alike, autocatalytic processes drive the system to greater and greater diversity. Novelty begets novelty in a positive feedback loop. An autocatalytic set of self-enabling transactions feed back upon one another in combinatoric fashion to generate progressive diversity. While these combinatorial dynamics cannot be prestated, the model explains the “hockeystick of economic growth”—a pattern of prolonged stasis followed by a sudden takeoff, such as occurred during the Industrial Revolution or the Cambrian explosion in ecology. Several implications derive from our niche emergence model, including the idea that the evolutionary process of technological change is not something we do; rather, it happens to us.
Article
Full-text available
This paper introduces the notion of ‘cognitive’ institution and discusses its relevance to institutional economics. Cognitive institutions are conceptually founded on the philosophy of mind notion of extended mind, broadened to also include the distinctly social, institutional, and normative dimensions. Cognitive institutions are defined as institutions that not just allow agents to perform certain cognitive processes in the social domain but, more importantly, without which some of the agents' cognitive processes would not exist or even be possible. The externalist point of view of the extended mind has already had some influence in institutional economics: Arthur Denzau and Douglass North first introduced the notion of institution understood in terms of ‘shared mental models’, and relatedly philosopher Andy Clark introduced the notion of ‘scaffolding institution’. We discuss shared mental models and scaffolding institutions and go a step further by showing that the notion of cognitive institution can capture more fundamental and salient aspects of economic institutions. In particular, we focus on the market as an economic cognitive institution.
Article
Full-text available
An important part of what it means for agents to be situated in the everyday world of human affairs includes their engagement with economic practices. In this paper, we employ the concept of cognitive institutions in order to provide an enactive and interactive interpretation of market and economic reasoning. We challenge traditional views that understand markets in terms of market structures or as processors of distributed information. The alternative conception builds upon the notion of the market as a “scaffolding institution.” Introducing the concept of market as a “socially extended” cognitive institution we go beyond the notion of scaffolding to provide an enactive view of economic reasoning that understands the market participant in terms of social interactive processes and relational autonomy. Markets are more than inert devices for information processing; they can be viewed as “highly scaffolded,” where strong constraints and incentives predictably direct agents’ behavior. Building on this idea we argue that markets emerge from (a) the economic interaction of both supply and demand sides, in continual and mutual interplay, and (b) more basic social interactions. Consumer behavior in the marketplace is complex, not only contributing to determine the market price, but also extending the consumer’s cognitive processes to reliably attain a correct evaluation of the good. Moreover, this economic reasoning is socially situated and not something done in isolation from other consumers. From a socially situated, interactive point of view buying or not buying a good is something that enacts the market. This shifts the status of markets from external institutions that merely causally affect participants’ cognitive processes to social institutions that constitutively extend these cognitive processes. On this view the constraints imposed by social interactions, as well as the possibilities enabled by such interactions, are such that economic reasoning is never just an individual process carried out by an autonomous individual, classically understood. In this regard, understanding the concept of relational autonomy allows us to see how economic reasoning is always embodied, embedded in, and scaffolded by intersubjective interactions, and how such interactions make the market what it is.
Article
More than a half-century ago, the ‘cognitive revolution’, with the influential tenet ‘cognition is computation’, launched the investigation of the mind through a multidisciplinary endeavour called cognitive science. Despite significant diversity of views regarding its definition and intended scope, this new science, explicitly named in the singular, was meant to have a cohesive subject matter, complementary methods and integrated theories. Multiple signs, however, suggest that over time the prospect of an integrated cohesive science has not materialized. Here we investigate the status of the field in a data-informed manner, focusing on four indicators, two bibliometric and two socio-institutional. These indicators consistently show that the devised multi-disciplinary program failed to transition to a mature inter-disciplinary coherent field. Bibliometrically, the field has been largely subsumed by (cognitive) psychology, and educationally, it exhibits a striking lack of curricular consensus, raising questions about the future of the cognitive science enterprise. Núñez et al. use bibliometric and socio-institutional indicators to show that over the years, cognitive science has failed to transition to a mature, coherent, interdisciplinary field.
Article
Every economic explanation assumes maximization. How strange, then, that few economists accept one of maximization's most straightforward implications: every observed institution is efficient . My aim is to persuade economists of this fact and thus to dissuade them from making illogical claims about social welfare. To frame my argument, I consider the “property rights approach” to institutions developed by Yoram Barzel. I speculate that economists resist what maximization implies about institutional efficiency because they think that efficiency-always precludes them from improving the world, and hope of improving the world is what attracted them to economics in the first place. But, besides being inconsistent, resistance is unnecessary: efficiency-always does not preclude economists, or anyone else, from improving the world.
Book
Cambridge Core - History of Ideas and Intellectual History - Humanomics - by Vernon L. Smith
Book
Normative analysis in economics has usually aimed at satisfying individuals' preferences. Its conclusions have supported a long-standing liberal tradition of economics that values economic freedom and views markets favourably. However, behavioural research shows that individuals' preferences, as revealed in choices, are often unstable, and vary according to contextual factors that seem irrelevant for welfare. The Community of Advantage proposes a reformulation of normative economics that is compatible with what is now known about the psychology of choice. Other such reformulations have assumed that people have well-defined 'latent' preferences which, because of psychologically-induced errors, are not always revealed in actual choices. According to these reformulations, the economist's job is to reconstruct latent preferences and to design policies to satisfy them. The argument of this book is that latent preference and error are psychologically ungrounded concepts, and that economics needs to be more radical in giving up rationality assumptions. The book advocates a kind of normative economics that does not use the concept of preference. Its recommendations are addressed, not to an imagined 'social planner', but to citizens, viewed as potential parties to mutually beneficial agreements. Its normative criterion is the provision of opportunities for individuals to participate in voluntary transactions. Using this approach, many of the normative conclusions of the liberal tradition are reconstructed. It is argued that a well-functioning market economy is an institution that individuals have reason to value, whether or not their preferences satisfy conventional axioms of rationality, and that individuals' motivations in such an economy can be cooperative rather than self-interested.