Bounded Rationality

One usage of this term assumes that individuals behave in a manner that is as optimal with respect to their goals as their resources will allow. Loosely, it means they are content with outcomes that are merely satisfactory rather than ideal, operate by rules of thumb, take short cuts and so on. In essence, this version of the theory recognizes that making decisions is itself a costly exercise and the resources used in weighing up the pros and cons of any choice need themselves to be economized. Another usage avoids entirely the idea that individuals have precisely defined goals that they seek to maximize even if only approximately or by rule of thumb and so on. Instead, people have aspirations which they can adapt up or down according to the ease of realizing them. Both types of bounded rationality relax one or more assumptions of standard expected utility theory.

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