Abstract
‘Bounded rationality’ refers to rational choice that takes into account the cognitive limitations of the decision-maker – limitations of both knowledge and computational capacity. It is a central theme in the behavioural approach to economics. Theories of bounded rationality can be generated by relaxing one or more of the assumptions of subjective utility theory underlying neoclassical economics. They insist that the model of human rationality must be derived from detailed and systematic empirical study of human decision-making behaviour in laboratory and real-world situations. For example, a satisficing strategy may be postulated instead of the maximization of a utility function.
This chapter was originally published in The New Palgrave Dictionary of Economics, 2nd edition, 2008. Edited by Steven N. Durlauf and Lawrence E. Blume
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Simon, H.A. (2008). Rationality, Bounded. In: The New Palgrave Dictionary of Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-349-95121-5_472-2
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DOI: https://doi.org/10.1057/978-1-349-95121-5_472-2
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Publisher Name: Palgrave Macmillan, London
Online ISBN: 978-1-349-95121-5
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Latest
Rationality, Bounded- Published:
- 22 March 2017
DOI: https://doi.org/10.1057/978-1-349-95121-5_472-2
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Original
Bounded Rationality- Published:
- 17 October 2016
DOI: https://doi.org/10.1057/978-1-349-95121-5_472-1