30 HSE ECONOMIC JOURNAL No 1 HSE Economic Journal, 2015, vol. 19, no 1, pp. 30–44. Economic Theory of the «Second Worst» Rosefielde Steven University of North Carolina, Chapel Hill, NC 27599-3305, USA E-mail: stevenr@email.unc.edu Concepts like rational expectations, workable competition, bounded rationa- lity and the second best are often used informally to suggest that imperfectly competitive market outcomes normally are very good and that it is sometimes appropriate to restrict competition further to achieve even better results. Paul Samuelson’s optimal neoclassical analysis adds plausibility to the inference, but the presumption is profoundly misleading because real markets are bounded ra- tional and corrupt. In Herbert Simon’s satisficing framework expanded to include vicious behavior, second bests are more plausibly interpreted as «second worsts» and comparative merit must be determined with Abram Bergson’s social welfare functions rather than by appeal to the Pareto ideal. Key words: bounded rationality; second best; economic coercion; second worst; inclu- sive economic theory; social welfare. JEL Classification: D5, D6. Introduction Faith in the cogency of neoclassical economic premises, the theory’s logical consistency, comprehensiveness, predictive power and normative merit run very deep among economists. Many find it difficult to believe that individuals, groups, authorities and policymakers signifi- cantly and persistently «misbehave» 1 . This faith holds both for idealist neoclassical optimiza- tion theory pioneered by Paul Samuelson where individuals are assumed to possess compre- hensively well-defined preference functions, perfect information, perfect computation and per- Acknowledgment: The author thanks any anonymous reviewer and Edward Tower for their excel- lent suggestions. 1 There are many exceptions. For example, see: [Marglin, 2008; Sen, 2010; Stiglitz, 2002]. Rosefielde Steven – Professor of Economics, University of North Carolina. Received: December 2014/Accepted: January 2015.