Encyclopedia of Law and Economics

2019 Edition
| Editors: Alain Marciano, Giovanni Battista Ramello

Bounded Rationality

  • Aspasia TsaoussiEmail author
Reference work entry
DOI: https://doi.org/10.1007/978-1-4614-7753-2_106


Bounded rationality (BR) is the idea that when individuals make decisions, they are “bounded” or limited because of inadequate information, cognitive limitations inherent in the human mind and time constraints. This type of rationality describes broad areas of social and economic action, in which rational utility-maximizers faced with complex situations are required to make less-than-perfect choices (satisficing rather than optimizing). BR is one of the cornerstones of rational choice theory and it informs many scientific fields, spanning from mathematic and economic psychology to political economy and managerial economics. This entry discusses the general aspects of BR, focusing on how cognitive biases affect the decision-making of rational agents faced with the costs of acquiring, absorbing and processing information. It also presents an overview of BR’s current applications in various fields of economic activity.

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© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.School of LawAristotle University of ThessalonikiThessalonikiGreece