To what extent and how is rationality bounded
Bounded rationalityis the idea thatis limited when individuals make decisions. In other words, humans’ “preferences are determined by changes in outcomes relative to a certain reference level”.Limitations include the difficulty of the problem requiring a decision, the cognitive capability of the mind, and the time available to make the decision. Decision-makers, in this view, act as, seeking a satisfactory solution, rather than an optimal solution. Therefore, humans do not undertake a fullto determine the optimal decision, but rather, choose an option that fulfils their adequacy criteria.
proposed bounded rationality as an alternative basis for the mathematical and neoclassical economic modelling of, as used in,, and related disciplines. The concept of bounded rationality complements “rationality as optimization”, which views decision-making as a fully rational process of finding an optimal choice given the information available.Therefore, bounded rationality can be said to address the discrepancy between the assumed perfect rationality of human behaviour (which is utilised by other economics theories such as the Neoclassical approach), and the reality of human cognition. Simon used the analogy of a pair of scissors, where one blade represents “cognitive limitations” of actual humans and the other the “structures of the environment”, illustrating how minds compensate for limited resources by exploiting known structural regularity in the environment.Manymodels assume that agents are on average rational, and can in large quantities be approximated to act according to theirin order to maximise.With bounded rationality, Simon’s goal was “to replace the global rationality of economic man with a kind of rational behavior that is compatible with the access to information and the computational capacities that are actually possessed by organisms, including man, in the kinds of environments in which such organisms exist.”In short, the concept of bounded rationality revises notions of “perfect” rationality to account for the fact that perfectly rational decisions are often not feasible in practice because of the intractability of natural decision problems and the finite computational resources available for making them.
The concept of bounded rationality continues to influence (and be debated in) different disciplines, including economics, psychology, law, political science, and cognitive science.Some models ofin theassume thatcan be reasonably approximated or described as “” entities, as inor Downs’ political agency model.