Bounded Rationality - Explained
What is Bounded Rationality?
Written by J. Mance Gordon
Updated at April 22nd, 2024
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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.