Bounded Rationality and Decision Making
“The principle of bounded rationality [is] the capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required for objectively rational behavior in the real world — or even for a reasonable approximation to such objective rationality” - (Simon, H, A, Administrative behaviour: a study of decision-making processes in administrative organization -1962) This quote by Herbert Simon is a reflection of how his model of bounded rationality deviates from the 'standard' model of economic rationality. To understand the concept of bounded rationality, and how it assimilates psychological perspectives into economics, it is important to first grasp the ideals of what the standard model of economic rationality says. The standard model originates from the classical economics doctrine, and is a decision-making framework that is both, descriptive and normative in nat...