The influence of institutions on individuals rationality from Adam Smith
The Neoclassical Theory assumes that individuals are essentially selfish and maximize the utility of their income, measured on some utility scale. It defines the rationality of individuals based on preference relations, which should not change by the context. However, it is a fact that individuals do not generally use these “market rules” with their families, friends, colleagues or in their neighborhoods. This behavior has been seen as “Bounded rationality” or “failures” in the individual’s behavior. The main objective of this paper is to explore this kind of behavior and pose some questions about how institutions influence the preferences and decisions of individuals in some contexts. The assumption we have is: In reality, the homo economicus considers context as additional information and reacts on that basis. He adapts to the community with which he interacts as a matter of “survival”. We conclude that there is a “Broader rationality” in that behavior, which goes beyond the one defined in the Neoclassical Theory, which is applicable in highly specific conditions.