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    Bounded Rationality

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    Han

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    Bounded Rationality

    Uploaded by

    Han
    6 views11 pages

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    © © All Rights Reserved

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    6 views11 pages

    Bounded Rationality

    Uploaded by

    Han

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 11

    LASSMATES

    I C
    H

    Bounded Rationality

    PRESENTED BY: HANA


    What is ‘Bounded
    Rationality‘?
    Bounded
    Rationality
    is the idea that individuals‘ ability to make
    rational decisions is limited by factors such as
    the quantity of information and their ability to
    absorb and interpret it within a given timescale.
    These decisions rarely maximises total utility
    because people are not willing to take the time
    to consider all possible options.
    herbert simon

    History of the term


    ‘Bounded Rationality.’
    quick history…
    coined by Herbert Simon.
    differs from the concept of “rationality” whereby
    humans are assumed to have complete knowledge
    of all their alternatives and consequences.
    states that there are “cognitive limits” to the
    human mind.
    also coined the term “satisficing” which is a
    combination of the words “satisfy” and “suffice.”
    Examples of situations where
    individuals are bounded by
    rationality.
    Irrational behaviour.
    Many resources are
    available which can help
    you choose a better
    EXAMPLE 1: insurance company.
    (taken from the textbook) However, the quantity of
    Scene: You decide to renew the resources and the
    your annual car insurance with time taken to sift through
    the existing provider. all those resources may
    not be worth it to some
    individuals.
    In this situation, your
    rationality is bounded by a
    time constraint.

    EXAMPLE 2: You do not have time to


    go through the entirety of
    Day-to-day example
    the menu to choose the
    Scene: You want to get coffee
    coffee you want.
    from the cafeteria. The
    You probably do not
    cafeteria is seriously crowded.
    maximise your utility, but
    You decide to get the first
    you settle for the choice
    coffee you see on the menu.
    that is good enough.
    Conclusion
    individuals have multiple factors that influence
    their decision making-process
    decisions that are made may be proven sub-
    optimal if the individual does not have perfect
    knowledge
    at the end of the day, final decisions ≠ best
    decisions
    Resources
    https://www.wallstreetmojo.com/bounded-
    rationality/
    https://www.economicshelp.org/blog/glossary/bo
    unded-rationality/
    Cambridge Inernational AS & A Level Complete
    Economics Second Edition
    Thank you for
    listening!

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