Bounded rationality

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.[1]

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.[2]

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.[3] 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.[6]

  1. ^ Sent, Esther-Mirjam (October 31, 2017). "Rationality and bounded rationality: you can't have one without the other". The European Journal of the History of Economic Thought. 25 (6): 1370–1386. doi:10.1080/09672567.2018.1523206. hdl:2066/199920.
  2. ^ Campitelli, Guillermo; Gobet, Fernand (2010). "Herbert Simon's Decision-Making Approach: Investigation of Cognitive Processes in iExperts". Review of General Psychology. 14 (4): 354–364. doi:10.1037/a0021256. ISSN 1089-2680. S2CID 6146970.
  3. ^ Mancur Olson, Jr. ([1965] 1971). The Logic of Collective Action: Public Goods and the Theory of Groups, 2nd ed. Harvard University Press, Description, Table of Contents, and preview.
  4. ^ Gigerenzer, Gerd; Selten, Reinhard (2002). Bounded Rationality: The Adaptive Toolbox. MIT Press. ISBN 978-0-262-57164-7.
  5. ^ Wheeler, Gregory (2020), "Bounded Rationality", in Zalta, Edward N. (ed.), The Stanford Encyclopedia of Philosophy (Fall 2020 ed.), Metaphysics Research Lab, Stanford University, retrieved 2022-05-03
  6. ^ Chater, Nick; Felin, Teppo; Funder, David C.; Gigerenzer, Gerd; Koenderink, Jan J.; Krueger, Joachim I.; Noble, Denis; Nordli, Samuel A.; Oaksford, Mike; Schwartz, Barry; Stanovich, Keith E.; Todd, Peter M. (2018-04-01). "Mind, rationality, and cognition: An interdisciplinary debate". Psychonomic Bulletin & Review. 25 (2): 793–826. doi:10.3758/s13423-017-1333-5. ISSN 1531-5320. PMC 5902517. PMID 28744767.