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Bounded Rationality

 

Explanations > Theories > Bounded Rationality

Description | Example | So what? | See also | References 

 

Description

We are, to some extent, rational beings in that we will try to logically understand things and make sensible choices.

However, the world is large and complex, and we do not have the capacity to understand everything. We also have a limited time in which to make decisions. We are also limited by the schemas we have and other decisional limitations.

Harder problems require more thinking, increasing the cognitive load. If there is too much to think about this causes cognitive overload as we try to cope.

As a result, many of our decisions are not fully thought through and we can only be rational within the limits of time and cognitive capability. Herbert Simon indicated that there were thus two major causes of bounded rationality:

  • Limitations of the human mind
  • The structure within which the mind operates

This impacts decision models that assume us to be fully rational. For example when calculating expected utility, you may be surprised to find that people do not make the best choices.

Example

I choose a new hi-fi system based on reading a few magazines and listening to several friends. When the sales person offers me a better bargain, I still turn it down.

So what?

Using it

Either play within the bounds of rationality by giving the other person few choices and limited criteria, or break their existing bounds by showing how these are ineffective (then help them set up cognitive camp elsewhere).

Defending

When you make a decision, pause to reflect whether what seems rational is adequate. As necessary, test your decision with other people. Do not be hurried into a decision by others.

See also

Rationalism

References

Savage (1954), Newell and Simon (1972), Simon (1982)

 

 

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