Two types of ecological rationality: or how to best combine psychology and economics

This paper argues that the notion of 'ecological rationality' as used in (behavioral) economics has two rival meanings. The first type of ecological rationality (ER1) as used by Gerd Gigerenzer, refers to the use of cognitive strategies, heuristics in particular, in real-world decisions. The second type of ecological rationality (ER2) as used in the work of Vernon Smith, refers to the rationality of cognitive systems consisting of multiple individuals, institutions, and social norms. We demonstrate in this paper that their use originates in different psychological (or cognitive) approaches: Brunswikian functionalism and distributed cognition respectively. By uncovering the different psychological underpinnings, we are able to analyze the methodological differences between the two types of ecological rationality, the different ways in which central concepts are employed, and the differences in resulting experimental practices. We conclude with the implications for the various ways in which psychology and economics can be combined.