Bounded Rationality (SEP)
Herbert Simon introduced the term ‘bounded rationality’ (Simon 1957b: 198; see also Klaes & Sent 2005) as shorthand for his proposal to replace the perfect rationality assumptions of homo economicus with a concept of rationality better suited to cognitively limited agents:
Broadly stated, the task is to replace the global rationality of economic man with the 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. (Simon 1955a: 99)
Bounded rationality now describes a wide range of descriptive, normative, and prescriptive accounts of effective behavior which depart from the assumptions of perfect rationality. This entry aims to highlight key contributions—from the decision sciences, economics, cognitive- and neuropsychology, biology, physics, computer science, and philosophy—to our current understanding of bounded rationality.
1. Homo Economicus and Expected Utility Theory
Bounded rationality has come to encompass models of effective behavior that weaken, or reject altogether, the idealized conditions of perfect rationality assumed by models of economic man. In this section we state what models of economic man are committed to and their relationship to expected utility theory. In later sections we review proposals for departing from expected utility theory.
The perfect rationality of homo economicus imagines a hypothetical agent who has complete information about the options available for choice, perfect foresight of the consequences from choosing those options, and the wherewithal to solve an optimization problem (typically of considerable complexity) that identifies an option which maximizes the agent’s personal utility.
Read the rest here: https://plato.stanford.edu/entries/bounded-rationality/
Chatbot
Bounded rationality is a concept in decision theory and philosophy introduced by Herbert A. Simon. It describes the idea that human rationality is limited by the information available, the cognitive capacities of the mind, and the time available to make decisions.
Under classical models of rationality—especially in economics—people are assumed to be perfectly rational. They are supposed to gather all relevant information, evaluate every possible option, and choose the one that maximizes their benefit. Bounded rationality rejects this assumption. In real situations, people cannot process unlimited information or compute every possible outcome.
Because of these limitations, individuals typically do not search for the optimal solution. Instead, they look for a solution that is good enough. Simon called this process satisficing—a combination of “satisfy” and “suffice.” People stop searching once they find an option that meets their basic criteria.
The limits on rational decision-making arise mainly from three sources:
First, limited information. A person rarely has access to all relevant facts. Information may be incomplete, uncertain, or costly to obtain.
Second, cognitive limitations. The human brain cannot evaluate every possible alternative in complex situations. People rely on simplified models, rules of thumb (heuristics), or habits.
Third, time constraints. Many decisions must be made quickly. There is often not enough time to analyze every possibility.
Bounded rationality therefore explains why people rely on shortcuts, intuition, or routines rather than exhaustive calculation. These shortcuts can be useful but also lead to systematic errors or biases.
The concept is widely used in economics, psychology, political science, and organizational theory. It helps explain real-world behavior such as consumer choices, policy decisions, and how managers make decisions in complex organizations.
Wikipedia
Bounded rationality is the idea that rationality is limited when individuals make decisions, and under these limitations, rational individuals will select a decision that is satisfactory rather than optimal.
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 satisficers, seeking a satisfactory solution, with everything that they have at the moment rather than an optimal solution. Therefore, humans do not undertake a full cost-benefit analysis to determine the optimal decision, but rather, choose an option that fulfills their adequacy criteria.
Some models of human behavior in the social sciences assume that humans can be reasonably approximated or described as rational entities, as in rational choice theory or Downs’ political agency model. The concept of bounded rationality complements the idea of rationality as optimization, which views decision-making as a fully rational process of finding an optimal choice given the information available.[4] 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), and the reality of human cognition.[5] In short, 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 political science, economics, psychology, law, philosophy, and cognitive science.
Read the rest here: https://en.wikipedia.org/wiki/Bounded_rationality
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