This chapter first distinguishes between two concepts with overlapping meanings, rationality and cognitive complexity. Rationality is the concept employed by economists to analyze market behavior. As I will show, however, it is in fact a misleading ideal, even for their purposes, and not descriptive of actual market or any other behavior. Cognitive complexity is also an ideal, the ideal included as a prime element and goal in human development. Psychologists reveal in great detail how people fall short of this ideal. They do not employ it to describe behavior; rather they investigate actual behavior to discover the underlying principles that govern various kinds of behavior in various circumstances.

Following this analysis of meanings, I turn to some of its uses and a defense of the rational model, a specification of its inadequacy in general and in its application to the logic of collective action; I compare it to other forms of analysis with equal claim to rationality, point to the kinds of crucial decisions where it is unhelpful, discuss its failure to understand market learning, show some of the unhappy consequences for those who adopt it as a guide, and in detail show how the axioms of consumer behavior based on this rational model systematically undermine our understanding of market behavior.