Economics Bounded Rationality Questions
Bounded rationality relates to the concept of cognitive limitations by acknowledging that individuals have limited cognitive abilities and information-processing capacities. Bounded rationality suggests that individuals make decisions based on simplified models and heuristics, rather than fully optimizing their choices. This is due to the constraints imposed by limited time, information, and cognitive resources. In other words, cognitive limitations restrict individuals from fully rational decision-making, leading to the adoption of satisficing strategies instead.