bounded rationality


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Bounded Rationality

The theory that humans attempt to make rational decisions, but their ability to do so is limited by knowledge, ability to know, inadequate time to consider and other factors. Bounded rationality may explain situations like panic buying, in which investors continue to buy a security long after it ceases to be rational to do so. Investors may believe the price for the security may continue to rise and may not believe they have enough time to find out for certain. Bounded rationality claims people aim for rationality but cannot be reasonable all the time. See also: Behavioral economics.

bounded rationality

limits on the capabilities of people to deal with complexity, process information and pursue rational aims. Bounded rationality prevents parties to a CONTRACT from contemplating or enumerating every contingency that might arise during a TRANSACTION, so preventing them from writing complete contracts.
References in periodicals archive ?
The basics of behavioral economics starts out with a few definitions needed to explain the three behavioral economics concepts discussed here: Bounded Rationality, The Availability Heuristic, and Optimism Bias.
The decision to start with basic moves and attempt to weather the financial storm makes sense because of the incremental nature of most budget processes and the bounded rationality that decision makers operate from within (Nelson 2012).
The seven concepts used in the framework are: (1) internationally transferable (or non-location-bound) firm-specific advantages, (2) non-transferable (or location-bound) firm-specific advantages, (3) location advantages, (4) investment in--and value creation through--recombination, (5) complementary resources of external actors, (6) bounded rationality, (7) bounded reliability.
Gruneisen presented his preliminary findings June 10 at the Summer Institute on Bounded Rationality, a weeklong set of seminars and workshops for young scientists, at the Max Planck Institute for Human Development.
In their view, bounded rationality, willpower, and self-interest afflict firms' and consumers' decisionmaking, inducing systemic departures from the predictions of neoclassical economics and game theory.
Its application of concepts including choice architecture, message framing, bounded rationality and priming - coupled with its use of claims data, comprehensive quality data and user preferences - allows for highly customized cost transparency outreach.
Further, this bounded rationality was proportional to the uncertainties and complexity associated with transactions (Rindfleisch & Heide, 1997).
Two common explanations for non-zero contributions to public goods are based on bounded rationality or mistakes (Andreoni 1995; Anderson, Goeree, and Holt 1998) and social preferences (Fehr and Schmidt 1999; Fischbacher, Gachter, and Fehr 2001; Falk, Fehr, and Fischbacher 2005).
Data mining is now moving to the era of bounded rationality.
A perspective on judgment and choice: Mapping bounded rationality.
An alternative to constructivist rationality is ecological rationality, which is closely related to the principles and assumptions of bounded rationality.
The resources approach, bounded rationality and the inclusion of skills, different ways of taking into account implicitly the behavior of agents in the context of rationality.