Economics Bounded Rationality Questions
Bounded rationality refers to the idea that individuals have limited cognitive abilities and information processing capabilities, which affects their decision-making process. When it comes to decision-making under uncertainty, bounded rationality suggests that individuals may not have access to all the relevant information or the ability to process it effectively. As a result, they rely on heuristics, rules of thumb, and simplified decision-making strategies to make choices. This can lead to biases and suboptimal decisions, as individuals may not fully consider all possible outcomes or weigh probabilities accurately. Overall, bounded rationality influences decision-making under uncertainty by highlighting the limitations of human cognition and the need for simplified decision-making processes.