Home/Bounded Rationality

Bounded rationality is the idea that people are limited in their capacity for rational thought in their decision-making and thus often resort to other “non-rational” methods. The idea of bounded rationality inferred that agents cannot know and compute all information about the options available to them, faced with such limitations they use all sorts of shortcuts in order to cope. Bounded rationality implies that one cannot predict human behavior by setting up an abstract model of what is rational and inferring the behavior from that; that one has to know a lot about people’s particular psychological, social and physical context┬áthat shapes their decisions in order to make predictions about their actions. The idea of bounded rationality has major implications for economic theory as it significantly reduces the scope and relevance of rational choice theory, which is a cornerstone conventional economics.

2016-10-15T11:07:56+00:00