Traditionally, research on human judgment and decision making draws on cognitive psychology to identify deviations from normative standards of how decisions ought to be made. These deviations are commonly considered irrational errors and biases. However, this approach has serious limitations. Critically, even though most decisions are embedded within complex social networks of observers, this approach typically ignores how decisions are perceived by valued audiences. To address this limitation, this article proposes reputational rationality theory: a theoretical model of how observers evaluate targets who do (vs. do not) strictly adhere to normative standards of judgment and choice. Drawing on the dual pathways of homophily and social signaling, the theory generates testable predictions regarding when and why observers positively evaluate error-prone decision makers, termed the benefit of bias hypothesis. Given that individuals hold deep impression management goals, reputational rationality theory challenges the unqualified classification of response tendencies that deviate from normative standards as irrational. That is, apparent errors and biases can, under certain conditions, be reputationally rational. The reputational rewards associated with cognitive biases may in turn contribute to their persistence. Acknowledging the (sometimes beneficial) reputational consequences of cognitive biases can address long-standing puzzles in judgment and decision making as well as generate fruitful avenues for future research.