How does bounded rationality influence strategic decision-making?

Bounded rationality refers to the idea that individuals have limited cognitive abilities and information processing capabilities, which affects their decision-making process. In the context of strategic decision-making, bounded rationality influences it in several ways:

1. Limited information: Due to the constraints of time, resources, and cognitive abilities, decision-makers cannot gather and process all available information. They rely on heuristics, rules of thumb, and simplified models to make decisions, which may lead to suboptimal outcomes.

2. Cognitive biases: Bounded rationality also leads to cognitive biases, such as confirmation bias, anchoring bias, and availability bias. These biases can distort the decision-making process and lead to irrational choices.

3. Satisficing: Instead of maximizing outcomes, decision-makers often settle for satisfactory solutions that meet minimum requirements. This is known as satisficing, as they aim to find a solution that is "good enough" rather than the best possible option.

4. Incremental decision-making: Bounded rationality often leads to incremental decision-making, where decisions are made in small steps rather than comprehensive and radical changes. This approach allows decision-makers to cope with limited information and reduces the risk of making irreversible mistakes.

Overall, bounded rationality influences strategic decision-making by limiting the amount of information processed, introducing cognitive biases, promoting satisficing, and encouraging incremental decision-making.