Economics Bounded Rationality Questions Medium
The relationship between bounded rationality and information overload is that bounded rationality refers to the cognitive limitations of individuals in processing and making decisions based on the available information, while information overload refers to the situation where individuals are overwhelmed with excessive information that exceeds their cognitive capacity to process.
Bounded rationality suggests that individuals have limited cognitive abilities, time, and resources to gather and process all available information before making decisions. As a result, they rely on heuristics, rules of thumb, and simplified decision-making strategies to cope with the complexity of decision-making. This means that individuals often make decisions that are not fully rational or optimal, but rather satisfactory or "good enough" given their limited cognitive capacity.
Information overload, on the other hand, occurs when individuals are exposed to an excessive amount of information that surpasses their ability to effectively process and comprehend. With the advent of technology and the internet, individuals are bombarded with vast amounts of information from various sources, making it challenging to filter, evaluate, and prioritize the information.
The relationship between bounded rationality and information overload is that information overload exacerbates the limitations of bounded rationality. When individuals are overwhelmed with excessive information, they may experience decision paralysis, cognitive overload, or decision fatigue, leading to suboptimal decision-making. The abundance of information can make it difficult for individuals to identify relevant and reliable information, leading to information asymmetry and potential biases in decision-making.
In summary, bounded rationality and information overload are interconnected concepts in economics. Bounded rationality acknowledges the cognitive limitations of individuals, while information overload represents the overwhelming amount of information individuals are exposed to. Information overload can further hinder individuals' ability to make rational decisions, reinforcing the need for decision-making strategies that account for bounded rationality.