What is Bounded Rationality?

Bounded rationality is the theory that when people make decisions, their ability to reason through the problem is limited by:

• available information
• cognitive capacity or ability,
• time to think about the situation.

This management concept recognizes that decision making takes place within an environment of incomplete information and uncertainty.

How does Bounded Rationality Work?

Decision-makers in this context are seeking a satisfactory solution rather than an optimal solution to the problem. Bounded rationality was proposed by Herbert A. Simon, a mathematical economist, as a method of modeling decision making as applied in economics, political science, and other relative disciplines. It looks at decision making as a fully cognitive process of finding an acceptable option given the available information.