bounded rationality


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bounded rationality

a model of human action in which choices are seen as limited and imperfect in terms of knowledge of the situation and expected outcomes; action is therefore never completely rational. The concept originated in the work of March and Simon (1958) and Simon (1957a & b) on DECISION MAKING in organizations. Their work was critical of the model or IDEAL TYPE of perfect rationality presented in economic theories of the firm; in contrast to the assumption of profit maximization in economic theory March and Simon argued that actual behaviour in organizations was SATISFICING rather than ‘optimizing’ in terms of the achievement of goals. This approach to ‘subjective rationality’ has been influential in the sociology of organizations (see ORGANIZATION THEORY) because it demonstrated the way in which organizational structure (DIVISION OF LABOUR, SOCIALIZATION, AUTHORITY) and channels of communication limit the range of solutions considered.
References in periodicals archive ?
(48) People too have limited time, memory, and computational power, (49) and thus will face the same type of "bounded rationality" constraints as computers.
--(1982b), Models of Bounded Rationality: Economic Analysis and Public Policy, vol.
The exogenous pressures giving rise to competition necessarily renders organizations more reactive than proactive, which combined with the survival logic and escalating bounded rationality produces mimetic and pre-emptive strikes.
a more realistic bounded rationality assumption, the concerns about
Why Bounded Rationality? Journal of Economic Literature 34 (2): 669-700.
The evolutionary game model has been applied into analysis of stable strategies with bounded rationality, but the theory model still shows the defect, which has characteristic of full rationality.
But this often leads to less favourable results, because of what behavioural economists call bounded rationality.
If this assumption is too strong, then the expectations formation process can be modeled to include some form of "bounded rationality".
There was also the issue of bounded rationality and instances have come to light where the privacy policy of a service provider seeks the right to use the data of the customer in any form.
In this study, the characterization of heuristics is based on the concept of bounded rationality (Gigerenzer & Selten, 2001; Gilovich, Griffin, & Kahneman, 2002; Kahneman, 2003; Klaes & Sent, 2005) which lies within the field of cognitive science (Hutchins, 1995).
One of the conclusions of this book is the need of economics to emphasize the transition from mainstream option for maximization of utility models to the more realistic models proposed by the assumptions of bounded rationality.