In his paper on ‘Situational Determinism in Economics’, Spiro J. Latsis has described two competitive research programs dealing with the theory of the firm, one of which he calls ‘situational determinism’, the other, ‘economic behavioralism’. A basic contrast between these two programs is that the latter does, but the former does not, require as an essential component a psychological theory of rational choice. Both situational determinism and economic behavioralism postulate behavior that is, in a certain sense, rational, but the meaning of the term ‘rational’ is quite different for the two programs.

The conflict between situational determinism and economic behavioralism has been most often discussed from the vantage point of the discipline of economics, and as though the discrepant views of rationality associated with the two programs were both indigenous to economics. In point of fact, situational determinism is indigenous to economics, but economic behavioralism is largely an import from psychology, brought into economics to handle certain problems that appeared not to be treated satisfactorily by the situational approach. Thus, the concept of rationality employed in the program of economic behavioralism is not merely an adaptation of the concept previously used by economists following the program of situational determinism. It is a distinct concept that has its own independent origins within psychology. I shall use the phrase ‘substantive rationality’ to refer to the concept of rationality that grew up within economics, and ‘procedural rationality’ to refer to the concept that developed within psychology.