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Understanding Bounded Rationality

Bounded rationality refers to the limitations in knowledge and computational capacity that affect decision-making processes. It emphasizes that actual decisions are influenced by cognitive constraints, values, and organizational experiences, leading to a limited consideration of alternatives. This concept is central to the behavioral approach, highlighting how decision-makers are often unable to achieve complete rationality due to these bounds.

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14 views3 pages

Understanding Bounded Rationality

Bounded rationality refers to the limitations in knowledge and computational capacity that affect decision-making processes. It emphasizes that actual decisions are influenced by cognitive constraints, values, and organizational experiences, leading to a limited consideration of alternatives. This concept is central to the behavioral approach, highlighting how decision-makers are often unable to achieve complete rationality due to these bounds.

Uploaded by

ghosh2612srijoni
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© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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BOUNDED RATIONALITY

• The term 'bounded rationality' is used to


designate rational choice that takes into account
the cognitive limitations of the decision-maker -
limitations of both knowledge and computational
capacity.
• Bounded rationality is a central theme in the
behavioural approach, which is deeply concerned
with the ways in which the actual decision-
making process influences the decisions that are
reached.
• Rationality requires a choice between all possible alternative
behaviors, in reality only a few of those alternatives come to mind.
Complete rationality is "bounded" by the lack of knowledge.
• At the simplest level, performance may be bounded by manual
dexterity or reaction time, and decision-making processes may be
bounded by the speed of mental processes (Simon., 1979).
Individuals are also bounded by their values and the conceptions of
purpose that influence them in making their decisions, and these
tend to be shaped by their organizational experience. For example,
if the loyalty of the executives of the organization is high, their
decisions can show sincere acceptance of the set of objectives
given within the firm.
• As mentioned above, people are bounded by their knowledge of
the relevant factors for their work. This limitation applies both to
the basic knowledge required in decision-making (bridge designers
must know the fundamentals of mechanics) and to the information
required to make appropriate decisions in a given situation.

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