Economics Bounded Rationality Questions
Bounded rationality influences the study of political economy by recognizing that individuals and institutions have limited cognitive abilities and information processing capabilities. This means that decision-makers in the political and economic spheres often make decisions based on simplified models and heuristics, rather than fully optimizing their choices. Bounded rationality acknowledges that individuals may have cognitive biases and constraints that affect their decision-making, leading to suboptimal outcomes in the political economy. Therefore, the study of political economy takes into account the limitations of rationality and explores how these constraints shape economic and political behavior, policy-making, and the overall functioning of the economy.