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Understanding Bounded Rationality

Bounded rationality is a theory proposed by Herbert Simon in 1957 that challenges the concept of homo economicus. It recognizes that human decision-making is limited by cognitive constraints like imperfect knowledge, time limits, and emotions. As a result, people often satisfice by choosing options that are good enough rather than perfectly optimal. Bounded rationality does not mean irrationality, as decision-makers aim to be as rational as possible given their limitations. For example, a manager under time pressure to fire someone may quickly choose the first underperforming employee that comes to mind.

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Dimitri Mangubat
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63 views3 pages

Understanding Bounded Rationality

Bounded rationality is a theory proposed by Herbert Simon in 1957 that challenges the concept of homo economicus. It recognizes that human decision-making is limited by cognitive constraints like imperfect knowledge, time limits, and emotions. As a result, people often satisfice by choosing options that are good enough rather than perfectly optimal. Bounded rationality does not mean irrationality, as decision-makers aim to be as rational as possible given their limitations. For example, a manager under time pressure to fire someone may quickly choose the first underperforming employee that comes to mind.

Uploaded by

Dimitri Mangubat
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd

Bounded Rationality

 Bounded Rationality is a theory proposed by


Herbert Simon in 1957 that challenges the concept of
homo economicus. This theory revolves on a recognition
that human knowledge and capabilities are limited and
imperfect due to different “cognitive limits” such as
forgetfulness, misconceptions, time constraint scenarios,
or in other cases, emotions.
 Satisfice rather than Optimize – As the real world is
much more complicated, people, in many different
situations, tend to seek something that is satisficing
(combination of sufficing & satisfying) or “good enough”
even though that may not be necessarily optimal.
 Bounded rationality ≠ Irrationality – The theory of
bounded rationality should not be describe as
irrationality because it doesn’t try to explain trust in lucky
numbers or abnormal behaviors. Decision-makers are
attempting to make as rational a decision as possible,
guided by aspiration adaptation rather than utility
maximization.
 A good example for bounded rationality decision-
making in the workplace is when a manager was asked
by her boss to eliminate an employee within an hour due
to corporate layoff. The manager will have the tendency
to select the first candidate that comes to mind who isn’t
performing well without making a complex analysis.
References:
 [Link]
simon
 [Link]
principlesofmanagement/chapter/rational-decision-
making-vs-other-types-of-decision-making/
 [Link]
is-bounded-rationality/
 [Link]
[Link]
 [Link]
encyclopedia-of-be/bounded-rationality/
Eto yung Photo/Icon na I think Appropriate pero di ko alam
na pano ilagay haha sorry:

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