System Dynamics Glossary
What is the meaning of Bounded Rationality?
Bounded rationality is based on behavioural notions and
upon observations of the ways in which decisions are actually
taken in practice. Criticism of classical rationality led Nobel laureate
Herbert Simon (1972) to propose the notion of bounded rationality. Bounded rationality assumes human rationality has
its limits, especially when operating in conditions of considerable uncertainty.
Bounded rationality has two interlocking components:
Limitations of the
human mind. Models of human judgement and decision making have
to take into account known limitations about the mind’s capacities.
Because of the mind’s limitations, humans "must use approximate methods
to handle most tasks" (Simon, 1990: 6). These methods include
recognition processes that largely obviate the need for further information
search, heuristics (mental shortcuts) that guide search and determine when
it should end, and simple decision rules that make use
of the information found.
Structure within which the mind operates. Environmental
structure is of crucial importance because it can explain when
and why simple heuristics perform well: if the structure of
the heuristic is adapted to that environment. A heuristic is
said to be ecologically rational to the degree that it
is adapted to the structure of an environment.
For further explanations
of bounded rationality terms, see Gigerenzer et al.,
1999.
See also satisficing.
Books Related to Bounded Rationality
Gerd Gigerenzer and Reinhard
Selten, "Bounded Rationality: The Adaptive Toolbox".
—More information on Bounded Rationality: The Adaptive Toolbox
Herbert A. Simon, "Models of Bounded
Rationality, Vol. 3: Emperically Grounded Economic Reason".
—More information on
Models of Bounded Rationality, Vol. 3: Emperically Grounded Economic
Reason
Other topics in our resources on System Dynamics related to Bounded Rationality include:
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