Bounded rationality - Wikipedia

Jump to content

Search

Search

Donate

Create account

Log in

Personal tools

Donate

Create account

Log in

Bounded rationality

21 languages

العربية<br>Български<br>Čeština<br>Deutsch<br>Español<br>فارسی<br>Suomi<br>Français<br>עברית<br>Italiano<br>日本語<br>Қазақша<br>한국어<br>Nederlands<br>Português<br>Русский<br>Svenska<br>Türkçe<br>Українська<br>粵語<br>中文

Edit links

From Wikipedia, the free encyclopedia

Making of satisfactory, not optimal, decisions

This article needs additional citations for verification . Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed.<br>Find sources: "Bounded rationality" – news · newspapers · books · scholar · JSTOR (March 2023) (Learn how and when to remove this message)

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]

Background and motivation<br>[edit]

Bounded rationality was coined by Herbert A. Simon, where it was proposed as an alternative basis for the mathematical and neoclassical economic modelling of decision-making, as used in economics, political science, and related disciplines. Many economics models assume that agents are on average rational, and can in large quantities be approximated to act according to their preferences in order to maximise utility.[2] 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."[7] Soon after the term bounded rationality appeared, studies in the topic area began examining the issue in depth. A study completed by Maurice Allais in 1953 began to generate ideas of the irrationality of decision making as he found that given preferences, individuals will not always choose the most rational decision and therefore the concept of rationality was not always reliable in economic predictions.[8]

In Models of Man, Simon argues that most people are only partly rational, and are irrational in the remaining part of their actions. In another work, he states "boundedly rational agents experience limits in formulating and solving complex problems and in processing (receiving, storing, retrieving, transmitting) information".[9] 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.[4]

Simon describes a number of dimensions along which classical models of rationality can be made somewhat more realistic, while remaining within the vein of fairly rigorous formalization. These include:

limiting the types of utility functions

recognizing the costs of gathering and processing information

the possibility of having a vector or multi-valued utility function

Simon suggests that economic agents use heuristics to make decisions rather than a strict rigid rule of optimization. They do this because of the complexity of the situation. An example of behaviour inhibited by heuristics can be...