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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.
Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
To the extent that complexity is making it difficult for policymakers to correctly determine how the behavior of socially dependent actors is affecting the overall behavior of corporations, the solution is not to try to impose axiomatic behavioral assumptions--e.g., that these actors are fully rational and do not face bounded rationality or informational asymmetry constraints--but to create additional observation points that take into account both the intertemporal nature of corporations and the intricate social dependence of participants.
These costs stem from dimensions in the interorganizational network that cause transaction difficulties, including bounded rationality, uncertainty, asset specificity, opportunism, and small numbers (Williamson, 1975).
protection and our novel, bounded rationality justification are based on
Bounded Rationality. Annual Review of Political Science 2 (1): 297-321.
So strategy prospect value is more close to people's judgment result, reflecting bounded rationality [25-27].
Meanwhile, in accordance with bounded rationality theory, the intelligent use of heuristics can be utilized to adapt to the structure of the environment and exploit its resources in a way that favors certain behaviors.
A problem present in the book is the equal sign put between bounded rationality and behavioral economics, a point of view that the author assumes in the text.
Rather than decision-making reflecting consistent application of knowledge, reflection and deliberation (comprising the 'reflective system'), Simon contended that insufficient knowledge, suboptimal cognitive practices and the imperative for regular hasty decisionmaking led to bounded rationality (Velupillai and Kao 2016).
The latter is comprised of such diverse approaches as for example the concept of bounded rationality developed by Herbert Simon, the analysis of institutional change introduced by Douglass North, the theory of market failure of George Akerlof or the inclusion of transaction costs elaborated by Oliver Williamson.
As discussed in these studies, one of the main assumptions that leads to the usage of delays is the idea of bounded rationality. In most cases, it is hard for the firm to use real-time quality demanded by the consumers to maximize its profits, because the data collection and analysis process could take some time: by the time there is data for period t, we are in the period t + s.