Economics Bounded Rationality Questions
Bounded rationality impacts the study of behavioral finance by recognizing that individuals have limited cognitive abilities and information processing capabilities. This means that individuals may not always make rational decisions when it comes to financial matters. Instead, they rely on heuristics, biases, and other cognitive shortcuts to make decisions. Understanding bounded rationality helps behavioral finance researchers to explain and predict the deviations from rationality in financial decision-making, and to develop models that better reflect the real-world behavior of individuals in the financial markets.